As expected, the @ecb cut rates by 25 basis points.
The forecast revisions that accompanied this policy action lowered growth and maintained worries about somewhat sticky inflation.
The press conference of @Lagarde, the ECB president, will be closely watched.#economy #inflation— Mohamed A. El-Erian (@elerianm) September 12, 2024
The European Central Bank (ECB) cut interest rates on Thursday for the second time in three months as it continued the slow unwinding of the aggressive stance the bank took to stamp out high inflation in the eurozone. Central bank officials, who set rates for the 20 countries that use the euro currency, lowered the deposit rate a quarter percentage point to 3.5 percent from 3.75 percent. Inflation has slowed, and the central bank has faced pressure to help the region’s ailing economy: Growth has been weak for more than a year, in part due to anemic household spending and high interest rates holding back investment.
The @ECB is expected to deliver a second 25-basis-point interest rate cut at the conclusion of its policy meeting today.
Less clear is how it will frame its next policy steps.
(Interestingly, the Eurozone's central bank is attracting much less attention than the Federal Reserve…— Mohamed A. El-Erian (@elerianm) September 12, 2024
Still, policymakers have been cautious, lowering rates slowly from their record high levels due to concerns about stubborn inflation in the services sector, which includes hospitality businesses and insurance.
Ecb reduces rates for eurozone
The move on Thursday follows the first decrease since 2019, which also took place in June.
Difference between ECB MRO and ECB depo rate at record low 15bps. EXPLAIN! pic.twitter.com/oxK7rM8dKA
— Holger Zschaepitz (@Schuldensuehner) September 12, 2024
“It was perfectly appropriate” to cut interest rates, Christine Lagarde, the president of the bank, said in a news conference in Frankfurt, given the eurozone’s “gradual disinflationary process.” However, she offered few hints about the timing of future rate cuts, stating the bank was “not pre-committing to a particular rate path.”
#ECB's Lagarde: ECB decision on the size of the depo rate cut was unanimous. Says inflation will drop to 2% in course of 2025. pic.twitter.com/rm07T8oBcA
— Holger Zschaepitz (@Schuldensuehner) September 12, 2024
Even as inflation has dropped from double-digit highs in the eurozone, policymakers there, similar to those in Britain and the United States, have only tentatively begun the process of easing monetary policy. After maintaining high rates for an extended period, central bank officials have gained confidence that their actions have prevented high inflation from becoming entrenched. However, wary of declaring victory over inflation prematurely, officials are expected to keep rates sufficiently high to prevent economies from overheating.
- NYTimes.”European Central Bank Cuts Rates for Second Time in Three Months”.
- Bloomberg.”ECB’s Kazaks Says October Rate Cut Would Need Economic Slump”.
- CNN.”Europe cuts interest rates again as economic recovery falters”.