The European Central Bank (ECB) announced the third interest rate cut this year at the October meeting held on Thursday. Although markets priced in this reduction, the decision was somewhat controversial within the Governing Council, as initially October was to be a transition month, but the Federal Reserve’s “rush” to accelerate reductions (even if it then reversed itself, “betraying” the ECB and leaving it alone) and the poor economic data led the central bank to implement this decision. The ECB lowered its rates by 25 basis pointsthe three key interest rates remain as follows: the deposit rate (where banks accumulate their liquidity) falls to 3.25%, the main refinancing rate to 3.40% and the credit facility (emergency window ) at 3.65%. Here you can follow the reaction of the market and analysts live.
Thursday’s decision comes after a turbulent few weeks for the ECB after the Federal Reserve surprised with a significant cut (50 basis points, double the usual amount) that put all the pressure on the shoulders of European officials. If the United States, with its so far resilient economy, cut interest rates so sharply, in an anemic Europe we would have to put more meat on the grill and not wait until December for a further cut.
The new indicators (including disappointing PMIs for September and inflation already below 2% among the big four in the Eurozone – a CPI of 1.7% year-on-year last month in the Eurozone – thanks to the collapse oil) gave the final push. It was then that several members of the European supervisor, based in the German city of Frankfurt, including his own Lagardeagreed to open the door to a movement in October, while avoiding taking it for granted.
Behind the beautiful story that is emerging these weeks, there is still data and interpretations for all tastes. Core inflation (excluding energy, food, alcohol and tobacco, more volatile elements) rIt also decreased in September, but remains at the still high level of 2.7% year-on-year.. A percentage not so reassuring insofar as the indicator was very sticky, to the great continuing headache of the ECB, and knowing that the favorable base effect in energy which contributed to its decline (through the transport services for example) goes the other way in the second half of the year.
Domestic inflation resists
Another indicator to which the ECB has started to pay particular attention, domestic inflation (LIMI for its acronym in English), which removes the effect of imports, remained at a still high level of 4.2% over one year in August. In the same vein, services inflation, which is closely monitored, continues to oscillate around a very high CPI of 4% over one year, the level at which it has been established for two years.
Without losing the relationship with the service sector, recent source of inflationary pressuresbut fully entering the job market, changing wages has all types of advocates. On the one hand, those who emphasize the notable slowdown. On the other hand, those who consider that the 4.5% of the last quarter are still too high to converge with the ECB’s inflation objective of 2%.
Also on the labor market, unemployment remained near historic lows in the Eurozone and some forecasts suggest that many businesses in the region will continue to suffer from labor shortages, which could even be blamed whether lower rates stimulate investment demand. businesses. On the other hand, those who point out that the labor market is starting to show cracks (sharp drop in vacancies in Germany and France, massive layoffs in struggling German industry) which will ease the pressure on wages, but will intensify concerns about growth.
How does this decision affect finances?
Consumers are already feeling this cycle of falling rates in their pockets, which could accelerate more than expected in the months to come. Banks are reducing the profitability of their savings products as well as the price of their property loans.
The yield on Treasury bills, except for three-month debt, fell below 3% and many banks reduced interest on their accounts and deposits. “If a year ago it was easy to find a deposit at 4% or more, now it is almost impossible,” they explain at HelpMyCash.
During the first half of October, at least 14 banks have reduced the profitability of their deposits and accounts, according to the comparator. Today, we find medium and long-term deposits in other countries of the European Union with an APR of up to 3.4%, which, however, remains significantly higher than the average profitability of Spanish deposits.
“Savers can get more than their bank currently pays them and they should not miss this opportunity,” they explain at HelpMyCash. The truth is that, even if they are Italian, Portuguese, etc. products, they all benefit from the support of the Guarantee Fund.
