FRANKFURT (GERMANY) (ITALPRESS) – The ECB Governing Council decided today to cut the interest rate on deposits at the central bank, the rate by which it steers monetary policy, by 25 basis points. On the basis of its updated assessment of the inflation outlook, the dynamics of core inflation and the intensity of monetary policy transmission, “it is now appropriate to take another step in moderating the degree of monetary policy tightening,” a note from the European Central Bank says.As announced last March 13 following the review of the operational framework, the spread between the interest rate on main refinancing operations and the rate on deposits at the central bank will be set at 15 basis points. The spread between the rate on the marginal and main refinancing operations will remain unchanged at 25 basis points. Therefore, the interest rate on deposits with the central bank will be reduced to 3.50 percent. The interest rates on the main refinancing operations and the marginal lending operations will be reduced to 3.65 percent and 3.90 percent, respectively. The changes will come into effect on Sept. 18, 2024. “Recent inflation data broadly reflect expectations, and the latest ECB expert projections confirm previous inflation outlooks,” the ECB note explains.According to the experts, overall inflation would average 2.5 percent in 2024, 2.2 percent in 2025, and 1.9 percent in 2026, as in the June projections. Inflation is expected to rise again in the latter part of this year, partly because previous sharp declines in energy prices will no longer affect rates calculated over the 12 months. It should then decline to our target in the second half of next year. As for core inflation, projections for 2024 and 2025 have been revised slightly upward, as price increases in services turned out to be higher than expected. At the same time, ECB experts continue to expect core inflation to decline rapidly, from 2.9 percent this year to 2.3 percent in 2025 and 2.0 percent in 2026. Domestic inflation remains high as wages continue to grow at a strong pace. However, labor cost pressures are easing and profits are partially mitigating the impact on inflation of wage growth. “Financing conditions remain tight and economic activity remains subdued, reflecting weakness in private consumption and investment. The ECB’s expert projections point to an economic growth rate of 0.8 percent in 2024, 1.3 percent in 2025 and 1.5 percent in 2026, a slight downward revision from June’s projections, mainly due to the lower contribution of domestic demand in the coming quarters,” the note continues. “The Governing Council is determined to ensure the timely return of inflation to its 2 percent medium-term target. It will maintain key policy rates at sufficiently restrictive levels as long as necessary to achieve this end. To determine appropriate level and duration of tightening, the Governing Council will continue to follow a data-driven approach whereby decisions are determined on a case-by-case basis at each meeting. In particular, interest rate decisions will be based on its assessment of the outlook for inflation, given new economic and financial data, the dynamics of core inflation, and the intensity of monetary policy transmission, without tying itself to a particular rate path.”
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