ECB Cuts Deposit Rate to 3.50% and Adjusts Refinancing Rates

In its recent monetary policy decision, the ECB announced a 25 basis point reduction in the deposit facility rate, aligning with expectations. The main refinancing rate has also been adjusted, now set at 3.65%, while the marginal lending facility rate is at 3.90%. These changes, effective from September 18, 2024, reflect the ECB’s ongoing commitment to a data-dependent approach in response to evolving economic indicators. Recent inflation data have shown signs of stability, yet the ECB remains cautious, projecting a slight increase in inflation towards the end of the year, influenced by previous energy price fluctuations. The central bank aims to maintain restrictive policy rates until inflation returns to its 2% target, despite downward revisions in growth expectations for the eurozone economy, which is projected to grow by 0.8% in 2024.

Key Adjustments

• Deposit Facility Rate: Decreased from 3.75% to 3.50%.
• Main Refinancing Rate: Adjusted to 3.65%.
• Marginal Lending Facility Rate: Set at 3.90%.

Economic Projections

The ECB’s updated projections indicate: - Core Inflation: Expected to rise slightly, with 2024 projections at 2.9% and 2025 at 2.3%. - GDP Growth: Revised downwards to 0.8% for 2024, 1.3% for 2025, and 1.5% for 2026.

Future Outlook

The ECB emphasizes a flexible, meeting-by-meeting approach to monetary policy, underscoring the importance of adapting to incoming economic data. This strategy aims to navigate the complexities of inflation management while fostering economic growth in the eurozone.