ECB Lowers Rates Second Time as Inflation Slows

Inga Muller
12 Sep, 2024
Frankfurt

The European Central Bank lowered its key lending rates by 25 basis points, as widely anticipated. 

The governing council lowered its rates for the second time after lowering rates in June, reflecting the weakening inflation in the currency union. 

The main refinancing rate is now fixed at 3.65%, the deposit facility rate at 3.5%, and the marginal lending facility rate at 3.9%. 

"The Governing Council today decided to lower the deposit facility rate—the rate through which it steers the monetary policy stance—by 25 basis points. 

Based on the 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," according to the statement from the ECB. 

Banks pay the main refinancing rate to the European Central Bank when they borrow for one week, while the deposit facility rate is paid to the bank when they make an overnight deposit to the Eurosystem. 

The marginal facility rate is the interest rate paid by banks when they seek overnight credit from the Eurosystem. 

ECB staff projected average inflation at 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026, matching the rates estimated in June. 

Core inflation estimates for 2024 and 2025 have been revised slightly higher, reflecting stronger-than-expected service inflation. 

Core inflation is now expected to slow from 2.9% to 2.3% in 2025 and 2.0% in 2026. 

ECB staff also slightly revised lower its estimate of GDP growth over the next three years, reflecting tight financing conditions and weak consumer demand. 

GDP growth in 2024 is expected at 0.8% in 2024, but will increase to 1.3% in 2025 and further improve to 1.5% in 2026.