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ECB cuts rates by 25 basis points as expected

By Michele Maatouk

Date: Thursday 12 Sep 2024

ECB cuts rates by 25 basis points as expected

(Sharecast News) - The European Central Bank cut interest rates on Thursday by 25 basis points to 3.5%, as widely expected, pointing to a slowdown in inflation.
This marked the second cut this year, after the ECB reduced interest rates in June for the first time in five years, from 4.0% to 3.75%.

The Bank said in a statement: "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."

It said recent inflation data have come in broadly as expected, and the latest staff projections confirm the previous inflation outlook.

The ECB still expects inflation to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, as in the June projections.

"Inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates," it said. "Inflation should then decline towards our target over the second half of next year."

As far as core inflation is concerned, the ECB said it would reach 2.9% this year, up from a forecast of 2.8% in June. It will then fall to 2.3% in 2025, up from a previous forecast of 2.2%. For 2026, the Bank continues to expect 2%.

Core inflation strips out volatile food and energy prices.

ING said: "Looking ahead, we expect the ECB to eventually step up the pace of further rate cuts. Not this year, but next year. Why not this year? Because currently, German wage negotiations and increasing selling price expectations still point to some stickiness of inflation.

"And given that the ECB's track record of predicting inflation on its way up is rather weak, the ECB will want to be entirely sure before engaging in more aggressive rate cuts."

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