ECB Cuts Interest Rates for First Time Since 2019

EU | June 6, 2024, Thursday // 17:56|  views

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The European Central Bank (ECB) has cut its key interest rates by 25 basis points, marking the first reduction since 2019. The main refinancing rate, marginal lending rate, and deposit rate have been adjusted to 4.25%, 4.50%, and 3.75% respectively. This is the first decrease in the refinancing and marginal lending rates since March 2016, and the deposit rate since September 2019.

From July 2022 to September 2023, the ECB raised interest rates by a total of 450 basis points to curb soaring inflation in the Eurozone, which peaked at 10.6% in October 2022. In May 2024, Eurostat reported inflation at 2.6%.

The ECB has revised its inflation forecasts upward. Headline inflation is now projected to average 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. Core inflation, excluding energy and food prices, is forecasted to average 2.8% this year, 2.2% next year, and 2% in 2026.

For economic growth in the Eurozone, the ECB expects an acceleration to 0.9% this year, 1.4% in 2025, and 1.6% in 2026. The Governing Council remains committed to returning inflation to the medium-term goal of 2% and will maintain interest rates at restrictive levels as long as necessary.

Decisions on interest rates will depend on assessments of inflation outlooks, economic and financial data, core inflation dynamics, and the strength of monetary policy transmission. The ECB does not commit to a specific trajectory for interest rates.

Additionally, the ECB announced a reduction in the Eurosystem's holdings of securities under the Emergency Securities Purchase Program (PEPP) by an average of 7.5 billion euros per month in the second half of the year.

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Tags: ECB, interest rates, Eurozone

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