ECB cuts rates again, trims growth outlook
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The news: The European Central Bank (ECB) cut its key deposit rate by 25 basis points to 3.5%, in its second reduction this year amid receding inflation but also emerging concerns about the economy.
The numbers: Growth forecasts for 2024 were lowered to 0.8% from 0.9%, while 2025 and 2026 projections were also reduced slightly.
Inflation is expected to reach 2% by the second half of 2025, with core inflation forecast at 2.9% for 2024, 2.3% for 2025 and 2% for 2026.
Markets are fully pricing in a quarter-point rate cut by year-end but are cautious about further reductions. Future cuts will depend on the data, the bank said.
The context: Like other central banks, the ECB is now more confident that inflation is returning to its target range, but the eurozone's economy is weakening due to sluggish household spending and declining external demand.
What they said: ECB President Christine Lagarde said the decision to cut was unanimous, noting there were downside risks to growth.
“The recovery is facing some headwinds,” she told reporters, adding investment and consumption were weak spots that “the gradually fading effect of restrictive monetary policy should support.”
Services inflation remains a concern, driven by rising negotiated wages, though labour cost growth is starting to moderate.
The bank said it was “determined to ensure that inflation returns to its 2% medium-term target in a timely manner,” and therefore policy rates would remain “sufficiently restrictive for as long as necessary to achieve this aim.”
“The Governing Council is not pre-committing to a particular rate path,” it added.
