The European Central Bank (ECB) has announced its fourth reduction in key interest rates this year, further easing monetary policy amidst a backdrop of slowing inflation. The deposit rate now stands at 3%, while the refinancing operations rate is set at 3.15%, and the marginal lending rate has been adjusted to 3.4%.
According to Reuters, this latest decision reflects a 0.25% cut to the deposit rate, which previously stood at 3.25%. Earlier this year, in June, the rate was as high as 4%. These progressive cuts in 2024 align with the ECB’s objective to guide inflation closer to its 2% target.
Inflation Trends and Projections
The ECB’s policy shift is informed by decelerating inflation, which has moved closer to the institution’s desired range. According to forecasts, inflation is expected to settle at 2.4% in 2024, declining to 2.1% in 2025. By 2026, inflation could dip to 1.9%, before slightly rising again to 2.1% in 2027.
These figures underline the ECB’s commitment to a balanced approach in achieving price stability across the eurozone. Despite the easing measures, the ECB emphasises that financing conditions remain restrictive due to the cumulative effects of previous rate hikes.
Impact on Financing Conditions
While the latest rate cuts aim to soften borrowing costs, the ECB cautions that its monetary policy stance continues to be characterised as restrictive. This reflects the enduring influence of past rate increases on existing credit, which still places constraints on borrowing activities.
Nonetheless, the current trajectory of rate reductions is expected to gradually make borrowing more accessible for businesses and households. As the cost of new loans decreases, the ECB anticipates a moderate stimulation of economic activity.
Outlook for Further Rate Adjustments
Market observers predict that the ECB will maintain its policy of incremental rate reductions, potentially lowering key rates to a range of 2–2.5% in the coming months. Such moves are aimed at providing additional support to the eurozone economy, which continues to face headwinds from global uncertainties and subdued domestic demand.
Context of Previous Rate Decisions
This week’s rate adjustment follows earlier reductions in September, when the ECB lowered its deposit rate to 3.5%, the refinancing rate to 3.65%, and the marginal lending rate to 3.9%. The series of rate cuts throughout the year mark a notable shift from the tightening measures implemented in 2022 and 2023, as inflationary pressures have eased significantly.
The ECB’s evolving monetary stance highlights the delicate balance central banks must maintain in fostering economic growth while safeguarding price stability.
