European Central Bank cuts interest rates by 25 basis points to 3.50%

The European Central Bank (ECB) has met market expectations and cut its benchmark interest rate by a quarter of a point to 3.5%, the second cut of the year, while also cutting its growth forecast for the eurozone in 2024 by a tenth to 0.8%.

The Governing Council, meeting in Frankfurt (Germany) on Thursday, cut the interest rate on the deposit facility – which repays excess overnight reserves and is the new reference rate – by 0.25 point to 3.5%.

The main financing operations (OPF) – the weekly credit injections – and the credit facility – which lends to banks overnight – will stand at 3.65% and 3.9% respectively, after the ECB makes a technical adjustment.

In this way, the ECB has resumed its monetary easing cycle after interrupting it at the July meeting, when it opted to maintain the monetary price.

“Based on the Governing Council’s updated assessment of the inflation outlook, underlying inflation dynamics and the intensity of monetary policy transmission, it is now appropriate to take a further step in moderating the degree of monetary policy,” the ECB reasoned.

The organisation led by Christine Lagarde has said that internal inflation remains “high” due to the “high” rate at which wages are growing. However, pressure on labour costs is easing and profits are partly mitigating the impact of wage increases on inflation.

At the same meeting, the ECB decided to cut its growth forecast for the euro area this year by a tenth to 0.8%, citing still-restrictive financing conditions that will continue to slow household consumption and companies’ investment decisions.

Similarly, it has cut growth forecasts for 2025 and 2026 by a tenth, years that are expected to see growth rates of 1.3% and 1.5% respectively, the entity reported in a statement on Thursday.

The inflation forecasts remain the same as in June, at 2.5% for 2024, 2.2% for 2025 and 1.9% for 2026, meaning that the price stability target will not be reached until 2026.