The European
Central Bank (ECB) lowered its deposit facility rate by 25 basis points to 2.00
per cent on Thursday, as widely anticipated. That marked the eighth rate cut by
the ECB since it started easing monetary policy in June 2024.
In addition, the
ECB’s interest rates on its main refinancing operations and marginal lending
facility were lowered by 25 basis points each to 2.15 per cent and 2.40 per
cent, respectively. Those decreases were also in line with markets’
expectations.
In its policy
statement, the ECB noted:
- Today’s decision to lower the deposit facility rate is based on its
updated assessment of the inflation outlook, the dynamics of underlying
inflation and the strength of monetary policy transmission;
- Inflation is currently at around the ECB’s 2%
medium-term target;
- In the baseline of the new projections, headline inflation is set to
average 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027. The downward revisions
compared with the March projections, by 0.3 percentage points for both 2025 and
2026, mainly reflect lower assumptions for energy prices and a stronger euro;
- Inflation excluding energy and food is expected to average 2.4% in
2025 and 1.9% in 2026 and 2027, broadly unchanged since March;
- Real GDP growth is seen averaging 0.9% in 2025, 1.1% in 2026 and 1.3%
in 2027. The unrevised growth projection for 2025 reflects a stronger-than-expected first quarter combined with weaker prospects for the remainder of the
year;
- While the uncertainty surrounding trade policies is expected to weigh
on business investment and exports, especially in the short term, rising
government investment in defence and infrastructure will increasingly support
growth over the medium term. Higher real incomes and a robust labour market
will allow households to spend more;
- Most measures of underlying inflation suggest that inflation will settle
at around the Governing Council’s 2% medium-term target on a sustained basis;
- Wage growth is still elevated but
continues to moderate visibly, and profits are partially buffering its impact
on inflation;
- ECB is determined to ensure that inflation stabilises sustainably at
its 2% medium-term target;
- Especially in current conditions of exceptional uncertainty, ECB will follow a data-dependent and meeting-by-meeting approach to
determining the appropriate monetary policy stance;
- ECB’s interest rate decisions will be based on its assessment of the
inflation outlook in light of the incoming economic and financial data, the
dynamics of underlying inflation and the strength of monetary policy
transmission;
- ECB is not pre-committing to a particular rate path