After the precautionary break in July, the European Central Bank (ECB) resumed the de-escalation of interest rates on Thursday by executing a second cut by 0.6 points of the general rate, to reach 3.65%. For its part, the deposit facility rate –The remuneration of entities for parking their money in Frankfurt, which has become the new reference, falls by a quarter of a point, as expected, to 3.5%. With this differentiated treatment, the Governing Council aims to reduce the gap between the two.
The institution headed by Christine Lagarde decides to act after verifying that inflation in the eurozone continues to fall and is now approaching the 2% target equivalent to price stability. At the same time, growth slowed again in the second quarter of the year due, among other factors, to the burden of high interest rates.
In any case, ECB remains concerned about recent inflation shocksparticularly in the services sector. The Governing Council therefore stresses that the rate cut will not be as rapid or constant as the rate increase recorded in 2022-2033 in response to the energy price crisis.
For the future, the ECB reiterates that I can’t commit in advance without a specific rate cut path. It will make decisions on a meeting-by-meeting basis, depending on how prices and wages are moving. Analysts expect at least one more rate cut this year, expected at the December meeting.
After Thursday’s cut, the general interest rate remains at 3.65%. The marginal credit facility (what banks pay for overnight funding) falls to 3.9%; while the deposit facility (the remuneration of entities for parking their money in Frankfurt, which has become the new reference rate) is reduced to 3.5%.
[El BCE bajará los tipos y los ajustará para dar liquidez a la banca: la tasa ‘general’ caerá al 3,65% este jueves]
In August, the euro area’s harmonised index of consumer prices fell by four tenths to 2.2%. Core inflation – which excludes energy, food, alcohol and tobacco, the most volatile items – also fell slightly, from 2.9% in July to 2.8% in August. This is a key structural indicator for the ECB when deciding on interest rates.
For its part, growth in the Eurozone slowed slightly by 0.3% recorded in the first quarter of the year up to 0.2% between April and June, approaching a stagnation point. Germany, the EU’s economic engine, saw a 0.1% decline between April and June. Among the eurozone’s major powers, Spain is the country with the strongest growth, with a rate of 0.8%.
Despite the prolonged economic anemia, the labor market continues to demonstrate an unprecedented level of resilience. In both the eurozone and the EU as a whole, unemployment remained stable in May, at historically low levels of 6.4% and 6%, respectively. In this case, Spain is the leader with a rate of 11.5%.
Last June, the ECB made the first rate cut in eight years and left them at 4.25%. A reduction that represented a change in monetary policy after the sharp rise in the price of silver between July 2022 and September 2023, with ten consecutive increases from 0% to 4.5%. This bullish cycle was followed by eight months in which rates remained at historic highs.
At the recent meeting of central bankers in Jackson Hole (USA), the ECB’s chief economist, Philippe Lanewarned that despite the progress made, a return to the 2% inflation target “is still not guaranteed” and that a restrictive monetary policy therefore remains necessary.
At the same time, Lane noted that keeping rates too high for too long ““would generate inflation chronically below the medium-term objective and would be ineffective in terms of minimising secondary effects on output and employment.”
