The European
Central Bank (ECB) decreased its deposit facility rate by 25 basis points to 3.50
per cent on Thursday, as widely anticipated. In addition, the ECB’s interest
rates on its main refinancing operations and marginal lending facility were
lowered by 60 basis points each to 3.65 per cent and 3.90 per cent,
respectively. Those moves also were in line with markets’ expectations.
In its policy
statement, the ECB noted:
- Based on Governing Council’s updated assessment of the inflation
outlook, the dynamics of underlying inflation and the strength of monetary
policy transmission, it is now appropriate to take another step in moderating
the degree of monetary policy restriction;
- Recent inflation data have come in broadly as expected, and the latest
ECB staff projections confirm the previous inflation outlook;
- ECB’s staff sees headline inflation averaging 2.5% in 2024, 2.2% in
2025 and 1.9% in 2026, as in the June projections;
- Domestic inflation remains high as wages are still rising at an
elevated pace but labour cost pressures are moderating, and profits are
partially buffering the impact of higher wages on inflation;
- ECB’s staff projects that region’s economy will grow by 0.8% in 2024,
rising to 1.3% in 2025 and 1.5% in 2026. This is a slight downward revision
compared with the June projections;
- Governing Council is determined to ensure that inflation returns to
its 2% medium-term target in a timely manner;
- Governing Council will keep policy rates sufficiently restrictive for
as long as necessary to achieve this aim;
- Governing Council will continue to follow a data-dependent and
meeting-by-meeting approach to determining the appropriate level and duration
of restriction;
- Governing Council is not pre-committing to a particular rate path;
- Governing Council stands ready to adjust all of its instruments within
its mandate to ensure that inflation returns to its 2% target over medium
term and to preserve smooth functioning of monetary policy transmission