The Governing Council of the ECB decided today to reduce the interest rate on the deposit facility by 25 basis points. The interest rate on the deposit facility will therefore be reduced to 3.50%, while the interest rates on the main refinancing operations and the marginal lending facility will be reduced to 3.65% and 3.90% respectively. The changes will come into force on 18 September. Inflation expectations were also confirmed, with the latest projections by ECB staff placing overall inflation “on average at 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, as in the June projections”, reads the note from the ECB. With respect to core inflation, however, the projections for 2024 and 2025 have been revised “slightly upwards, as increases in services prices have been stronger than expected. At the same time, ECB staff continue to expect core inflation to decline rapidly, from 2.9% this year to 2.3% in 2025 and 2.0% in 2026.”
Domestic inflation remains elevated “as wages continue to grow at a robust pace”, but “labour cost pressures are easing and profits are partly cushioning the inflationary impact of wage increases. Financing conditions remain tight and economic activity remains subdued, reflecting weak private consumption and investment”. And on growth, “ECB staff projections point to economic growth of 0.8% in 2024, 1.3% in 2025 and 1.5% in 2026, with a slight downward revision compared to the June projections, mainly due to the lower contribution of domestic demand in the coming quarters”.
And here is Antonio Tajani’s reaction in the Senate: “I am quite optimistic about the economic situation. An important game is being played in Frankfurt. I expected a more courageous choice by the ECB on the rate cut. 0.25% is too little. We must focus on growth, inflation is falling. The Central Bank must be able to do more and I believe that the treaty that established the ECB must be modified, which cannot only be the guardian of inflation but must govern the currency to support growth and the real economy – insisted Tajani -. The cost of money is excessive and there is no reason to cut only 0.25%. We must not go overboard with rigorist whims that damage everyone’s economy, including Germany’s, which needs more industry”, he finally emphasized.
#Tempo
2024-09-15 20:30:15
– How will the ECB’s interest rate cut affect consumer borrowing and spending?
Table of Contents
ECB Cuts Interest Rates: What It Means for the Economy
The European Central Bank (ECB) has taken a significant step in shaping the economic future of the European Union by reducing the interest rate on the deposit facility by 25 basis points. This decision, announced on [date], will see the interest rate drop to 3.50%, while the interest rates on the main refinancing operations and the marginal lending facility will be reduced to 3.65% and 3.90%, respectively. The changes will come into effect on September 18.
Inflation Expectations Remain Stable
The ECB’s decision was accompanied by the release of the latest inflation projections, which remain largely unchanged from the previous projections in June. Overall inflation is expected to average 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. Core inflation, which excludes volatile food and energy prices, is expected to decline rapidly from 2.9% this year to 2.3% in 2025 and 2.0% in 2026.
Domestic Inflation Remains Elevated
The ECB noted that domestic inflation remains elevated, driven by robust wage growth. However, labour cost pressures are easing, and profits are partly cushioning the inflationary impact of wage increases. Financing conditions remain tight, and economic activity remains subdued, reflecting weak private consumption and investment.
Growth Projections Revised Downwards
ECB staff projections point to economic growth of 0.8% in 2024, 1.3% in 2025, and 1.5% in 2026. This represents a slight downward revision compared to the June projections, mainly due to the lower contribution of domestic demand in the coming quarters.
Reactions from Key Figures
Antonio Tajani, reacting to the ECB’s decision in the Senate, expressed optimism about the economic situation but criticized the ECB’s decision, stating that the 0.25% rate cut was too little and that the Central Bank must do more to focus on growth. He also called for a reform of the treaty that established the ECB, arguing that it should not only be the guardian of inflation but also govern the currency.
Implications for the Economy
The ECB’s decision is likely to have a significant impact on the European economy, influencing borrowing costs, consumption, and investment. The reduction in interest rates is expected to make borrowing cheaper, which could boost economic growth. However, the downward revision of growth projections suggests that the ECB remains cautious about the economic outlook.
What’s Next?
The ECB’s decision marks a significant shift in its monetary policy stance, and its implications will be closely watched in the coming months. As the economic landscape continues to evolve, the ECB will need to balance its inflation-fighting mandate with the need to support economic growth. The European economy will be eagerly awaiting the next move from the ECB.
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Inflation in check.
ECB Cuts Interest Rates: A Breakdown of the Latest Decision
The European Central Bank (ECB) has made a significant move, reducing interest rates in a bid to stimulate the economy. In this article, we’ll dive into the details of the decision, exploring what it means for the economy, inflation, and growth.
Reducing the Deposit Facility Rate
The ECB’s Governing Council has decided to cut the interest rate on the deposit facility by 25 basis points, bringing it down to 3.50%. This change will come into effect on September 18. Additionally, the interest rates on the main refinancing operations and the marginal lending facility will be reduced to 3.65% and 3.90%, respectively.
Inflation Expectations Remain Steady
Despite the rate cut, the ECB’s latest projections suggest that overall inflation will remain steady, averaging 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. Core inflation, however, is expected to decline rapidly, from 2.9% this year to 2.3% in 2025 and 2.0% in 2026.
Domestic Inflation Remains Elevated
The ECB notes that domestic inflation remains elevated, driven by robust wage growth. However, labor cost pressures are easing, and profits are helping to cushion the inflationary impact of wage increases. Financing conditions remain tight, and economic activity is subdued, reflecting weak private consumption and investment.
Growth Projections Revised Downward
The ECB’s staff projections point to economic growth of 0.8% in 2024, 1.3% in 2025, and 1.5% in 2026. This represents a slight downward revision compared to the June projections, mainly due to the lower contribution of domestic demand in the coming quarters.
Reaction from Antonio Tajani
In response to the ECB’s decision, Antonio Tajani, the President of the European Parliament, expressed optimism about the economic situation. While he welcomed the rate cut, he believed it was insufficient, stating that “0.25% is too little” and that the Central Bank needs to do more to focus on growth.
What Does This Mean for the Economy?
The ECB’s decision to cut interest rates is a signal that the bank is committed to supporting the economy, despite ongoing challenges. The reduction in the deposit facility rate should help to stimulate borrowing and spending, which could, in turn, boost economic growth.
However, the ECB’s cautious approach to rate cuts suggests that the bank is aware of the risks of inflation and is trying to strike a balance between supporting growth and keeping
