The European Central Bank (ECB) announced a 25 basis point cut to its three key interest rates, marking the fourth reduction in its current easing cycle. Effective December 18, 2024, the deposit rate will stand at 3.00%, the main refinancing rate at 3.15%, and the marginal lending rate at 3.40%. While the ECB notes progress in the disinflationary process, it continues to emphasize a data-driven approach to future policy decisions.
Despite easing measures, tight financial conditions persist as past rate hikes continue to influence credit markets. Inflation is projected to average 2.4% in 2024, gradually declining to 1.9% by 2026. Meanwhile, core inflation, which excludes volatile energy and food prices, is expected to reach the ECB’s medium-term target of 2% by the same year. However, economic growth projections have been revised downward, with the eurozone economy forecast to expand by just 0.7% in 2024.
The ECB also highlighted ongoing reductions in its balance sheet, including a measured wind-down of the Pandemic Emergency Purchase Programme (PEPP) and the conclusion of long-term refinancing operations. While these measures reflect progress in monetary normalization, the central bank acknowledged that restrictive policies and sluggish demand are weighing on economic recovery.
