At an external meeting in Slovenia on Thursday, it decided to reduce the deposit rate, which is the key on the financial market, by a quarter of a point to 3.25 percent. Financial institutions can park money at the central bank at this interest rate. The main refinancing rate at which banks can borrow money was capped to the same extent – to the new level of 3.40 percent.
The monetary authorities initiated the interest rate turnaround in June and followed up in September. Just five weeks later, they lowered the price of money again: The European Central Bank (ECB) left it open whether the interest rate staccato will continue in December, as many experts assume. It does not commit to an interest rate path in advance, it says in the text accompanying the ECB Council’s monetary policy decision.
- The ECB and its new interest rate system: The central bank has narrowed the gap between key interest rates – and there are reasons for this. [OÖNplus]
Low inflation
The significantly reduced inflation offers scope for renewed monetary easing: inflation in the euro area fell to 1.7 percent in September, as the EU statistics office Eurostat announced just a few hours before the interest rate decision. This means that the inflation rate is below the ECB’s target of two percent, after it was 2.2 percent in August. Inflation rates of more than ten percent like in autumn 2022 are now a thing of the past.
At the same time, there are signs of a deterioration in the economy: the purchasing managers’ index from S & P Global, an important leading indicator, recently signaled the beginning of a downward trend. A warning sign is that the economic strength of all three major euro countries – Germany, France and Italy – went downhill at the same time. Germany is already in an economic crisis and will likely experience its second year of recession in a row in 2024 if the German federal government is correct in its projection.
Lagarde: The decision was unanimous
The decisions at the interest rate meeting were unanimous. There were discussions and debates, said ECB President Christine Lagarde on Thursday at the press conference after the council meeting in Ljubljana, Slovenia. “But at the end of the day there was a unanimous decision.”
Lagarde did not want to commit specifically to the future development of interest rates. “We will continue to pursue a data-dependent approach,” said the ECB boss. Decisions will be made “from meeting to meeting”. “We do not commit to a particular interest rate path in advance,” Lagarde added. “In any case, we are ready to adapt all our instruments within the framework of our mandate.” It must be ensured that inflation returns to the medium-term target of two percent.
The head of the Oesterreichische Nationalbank (OeNB) and member of the ECB Council, Robert Holzmann, warned at the beginning of October against further premature cuts in key interest rates by the ECB.
