Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
The European Central Bank on Thursday announced a fourth interest rate cut in 2024, confirming expectations of a quarter-percentage point move and lowering its inflation forecast for this year and next.
It brings the deposit service — the ECB’s key rate — to 3%. The deposit service has been at 4% since September 2023, ahead of the first cut in the current easing cycle in June 2024.
“The disinflation process is on track,” the central bank said in a statement on Thursday.
The ECB also withdrew its repeated message that it needs to keep policy rates “sufficiently restrictive”, a misstep that traders were keenly watching as a sign of a dovish turn.
Quarterly staff macroeconomic forecasts, meanwhile, lowered the ECB’s inflation forecast for 2024 to 2.4% from 2.5%. Inflation forecasts for 2025 also fell to 2.1% from 2.2%.
European Central Bank (ECB) Vice President Luis de Guindos, left, and European Central Bank (ECB) President Christine Lagarde during a rate decision press conference in Frankfurt, Germany, Thursday, Dec. 12, 2024. .
Bloomberg | Bloomberg | Getty Images
The organization now sees weaker growth this year and next year. According to staff forecasts, the eurozone economy will grow by 0.7% in 2024, up from a previous forecast of 0.8%. A growth of 1.1% is seen in 2025, compared to the previous forecast of 1.3%.
Risks to economic growth “continue to be on the downside,” ECB President Christine Lagarde said at a press conference on Thursday, citing “increasing friction in global trade” and the possibility of lower consumer and business confidence. He is fighting with Europe possibility to expand tariffs Proposed by US President-elect Donald Trump, economists say, it has introduced considerable uncertainty into the 2025 forecast.
A rate cut of 50 points was discussed
Hopes faded that a 50 basis point higher could be saved, even after that inflation was close to the ECB’s 2% targetas a growth indicator showed continued signs of deterioration in the large manufacturing economies of the eurozone, including Germany.
Money markets were down 25 basis points for a fourth quarter, amid a recent uptick in negotiated wage growth and concerns about the sustainability of service-sector inflation.
Lagarde, however, said at the press conference that some members of the Governing Council proposed a reduction of 50 points, which was discussed.
“The general consensus that everybody agreed on was that 25 basis points was the right decision,” he told CNBC’s Annette Weisbach. The key factors that influenced this decision were the following: the fact that inflation forecasts have converged to 2% in six consecutive projections; wage pressures have decreased; but this victory has not yet been fully achieved against inflation.
“We still have high service inflation… we would really like to see a change in the composition of inflation to feel absolutely confident that we are almost on target,” Lagarde said.
