ECB Cuts Interest Rates Throughout the Eurozone

2024-09-12 12:21:54

– ECB cuts interest rates by 0.25 percentage points

The European Central Bank lowers the key interest rate to 3.5 percent. This was expected.

Published today at 14:21

The key interest rate in the euro area is going down again.

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The European Central Bank (ECB) is reacting to the slowing inflation in the eurozone. The deposit rate, which is the benchmark on the financial market and which banks receive when they park excess money with the central bank, is falling by 0.25 percentage points to 3.5 percent. This was announced by the central bank in Frankfurt. The latest inflation data were in line with expectations. The ECB is thus making progress with the interest rate turnaround that began in June.

The monetary authorities hope that a reduction in interest rates will have a positive impact on growth. Companies and private households will be able to invest and consume more easily with cheaper loans. Conversely, savers will have to prepare for falling interest rates at their banks and lower returns on things like life insurance.

ECB limits corridor between key interest rates

The ECB is also implementing a technical innovation: it is bringing the deposit rate closer to the rate at which banks can obtain fresh money from the central bank (the “main refinancing rate”). This was previously known as the most important key interest rate.

In March, the central bank decided to limit the gap between the two interest rates from 0.5 to 0.15 percentage points as of September 18. The main refinancing rate will therefore fall even further by 0.6 percentage points to 3.65 percent, the ECB further announced.

The narrower interest rate corridor is intended to reduce fluctuations in short-term interest rates and create more predictability for banks. The move is unlikely to have much impact on private customers, as banks base their interest rates on deposits anyway.

Successes in the fight against inflation

Economists had expected the ECB’s decision, as inflation in the eurozone had recently approached the ECB’s medium-term target of two percent: In August, the inflation rate fell to 2.2 percent compared to the same period last year – the lowest level since summer 2021. In Germany, inflation fell particularly sharply to 1.9 percent.

The ECB initiated the interest rate turnaround in June and lowered key interest rates for the first time since the wave of inflation. The central bank had previously raised interest rates ten times in a row in order to get the inflation that had shot up after the Russian attack on Ukraine under control. Inflation in the eurozone reached its peak in October 2022 at more than ten percent.

Warnings against easing restrictions too quickly

However, core inflation, which is closely monitored by economists without the volatile prices of energy and food, is holding up well: it fell by just 0.1 percentage points to 2.8 percent in August. The Bundesbank, for example, is warning against easing the ECB’s monetary policy too quickly. “We have not yet reached our goal,” warned President Joachim Nagel recently.

The ECB believes that price stability can be maintained with an inflation rate of two percent in the eurozone. Higher inflation reduces the purchasing power of consumers. At the same time, the central bank wants to avoid lower rates or even falling consumer prices (deflation): These pose the risk that companies and consumers will postpone purchases because they expect even lower prices.

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Here‍ are some People Also‍ Ask (PAA) related questions for the title “ECB ⁤Cuts Interest​ Rates by 0.25​ Percentage Points to 3.5%”:

ECB Cuts Interest Rates by 0.25 Percentage Points to 3.5%

The European Central Bank (ECB) has announced a reduction in interest rates by 0.25 percentage points, lowering the benchmark deposit rate to 3.5%. This decision was made in response to the ⁢slowing inflation in the eurozone, ⁤with the latest inflation data aligning with expectations [1[1[1[1].

As part of its monetary policy, the‍ ECB sets three official interest rates: the main refinancing ​operations rate, the‌ marginal lending facility rate, and ​the deposit rate <a href="https://www.ecb.europa.eu/stats/policyandexchangerates/keyecbinterestrates/html/index.en.html”>[2[2[2[2]. ‌The⁣ deposit rate, which is the rate at which banks receive money when​ they park excess ⁣funds with ⁤the central bank, has been lowered to 3.5%. This ⁤move is seen as‌ part of the ECB’s effort to stimulate economic growth and combat inflation [3[3[3[3].

The ECB’s decision to cut interest rates is a continuation of its interest rate turnaround, which began in June. The‍ move is expected‍ to inject liquidity into the ‍financial⁤ system, making borrowing⁢ cheaper and encouraging banks to ​lend more. This, in turn, could⁤ stimulate economic growth and help the eurozone recover from‍ the current economic slowdown.

The ECB’s governing council, led‌ by President Christine Lagarde,