The European Central Bank (ECB) announced on Thursday, September 12, a reduction of 0.25 points in its main interest rate, in response to falling inflation, but without committing to continuing monetary easing. “It is now appropriate to take a further step to reduce the restrictive nature of monetary policy”according to the press release of the decision.
The deposit facility rate, raised to 4%, its highest level since the creation of the euro in 1999, after ten consecutive increases in financing costs between July 2022 and September 2023, thus increases to 3.5%, following the 25 basis point cut decided in June. The refinancing rate and the marginal lending rate are reduced to 3.65% and 3.9% respectively.
By lowering its benchmark rate, the ECB will influence the conditions under which banks lend to each other and, consequently, borrowing conditions, offering a slight breath of fresh air to ease tensions on housing credit and lending to companies.
The eurozone consumer price index, calculated according to European standards (HICP), slowed in August to 2.2% on an annual basis, its lowest level in three years, while the ECB’s medium-term inflation target is 2%.
The European Central Bank has also revised down its economic growth forecasts for this year but still sees inflation broadly in line with its 2% target by the end of 2025. Inflation is expected to rise to 2.2% next year, above the ECB’s target, but the projected path suggests a decline from target in the second half of the year.
