The European Central Bank (ECB) announced its second interest rate cut in the last three meetings, lowering the deposit facility rate by 25 basis points. This move comes as the ECB adjusts its stance on monetary policy, reflecting updated inflation forecasts and the current economic environment.
Why It Matters: The rate cut signals a shift toward a more moderated policy stance. Recent inflation data matched expectations, and the ECB’s latest projections reaffirm its goal of returning inflation to its 2% medium-term target. At the same time, the eurozone economy faces slower-than-expected growth due to weaker domestic demand.
Inflation & Growth: The ECB staff projects headline inflation will average 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026, this was unchanged from their last projections as the committee continues to believe that inflation will gradually return to the ECB’s target.
- Downward Revision: Economic growth forecasts have been slightly revised downward, with growth now expected at 0.8% in 2024, increasing to 1.3% in 2025 and 1.5% in 2026.
Between the lines: While the inflation outlook remains stable, the eurozone’s domestic demand has weakened, prompting the ECB to recalibrate its policy. Despite the rate cut, the Governing Council reiterated its commitment to maintaining restrictive policy for as long as necessary to keep inflation in check.
What’s next: The ECB noted in the release that it will continue to monitor inflation dynamics and the effectiveness of monetary policy transmission. While the rate cut is a signal of flexibility, the central bank stressed that further policy changes will depend on economic data in the coming months.
