The European Central Bank (ECB) has announced a reduction in key interest rates for the first time in nearly five years. The ECB’s Governing Council decided to lower the three key ECB interest rates by 25 basis points, effective June 12, 2024. This decision follows a comprehensive assessment of the inflation outlook, underlying inflation dynamics, and the efficacy of monetary policy transmission.
“Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady,” the ECB Governing Council said in a statement.
The interest rate on the main refinancing operations will decrease to 4.25%, while the rates on the marginal lending facility and the deposit facility will be reduced to 4.50% and 3.75%, respectively.
Despite recent declines, inflation is projected to stay above target well into next year, with headline inflation averaging 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
The ECB’s latest projections indicate that economic growth will pick up, with growth rates of 0.9% in 2024, 1.4% in 2025, and 1.6% in 2026.
Despite these positive trends, the ECB remains vigilant about potential risks such as geopolitical tensions, and unexpected tightening of global financing conditions.
