The European Central Bank (ECB) has reduced its interest rates for the second rate cut this year after half a decade of constant rates. as inflation trends closer to 2%.
The new interest rates have been set at 3.65% for main refinancing operations, 3.90% for the marginal lending facility, and 3.50% for the deposit facility.
The ECB reiterated that it can’t commit to a specific path for borrowing costs.
“Based on the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to take another step in moderating the degree of monetary policy restriction,” it said in a statement.
The ECB decision has been analysed in the context of easing inflation. In August, the EU consumer price growth slowed to 2.2%, according to flash estimates, marking the slowest increase since July 2021.
More concerning to the ECB are, however, the signs of economic slowdown in the Eurozone. The region’s gross domestic product (GDP) grew by just 0.2% in the second quarter of 2024, leading the central bank to revise its 2024 GDP growth forecast to 0.8% down from the previous estimate of 0.9%.
“As expected, the ECB has implemented a 25bps rate cut with no additional policy guidance,” Sylvain Broyer, chief EMEA economist at S&P Global Ratings told Euronews. “With wage growth far outpacing productivity and service inflation picking up again, the governing council has no reason to accelerate the pace of cutting rates or committing to further rate cuts at this stage.
Earlier this year, the ECB had cut its benchmark rate to 3.75% from a record high of 4%.
This decision from the ECB comes just ahead of anticipated policy easing from the Federal Reserve and follows the Bank of England’s single rate reduction this year.
