He European Central Bank (ECB) this Thursday cut the interest rates by 25 basis points, reaching its reference rate at 3.25%, the second consecutive decrease, which comes in a context of economic weakness in the eurozone.
The Governing Council of the ECB, which met in Ljubljana (Slovenia), also lowered the deposit rate – which remunerates excess overnight reserves and is its reference rate – by third time this yearuntil the 3.25%.
Likewise, the main financing operations (OPF) – the weekly injections of money – and the credit facility – the one that lends to banks overnight – were at 3.4% and 3.65%respectively.
Technical adjustment
On September 18, the technical modifications announced in March took effect and provided for the deposit rate to become ‘de facto’ the reference rate, when determining the interest that the financial entities they receive, or pay if negative, for keeping their deposits in the ECB.
Previously, the refinancing rate was a variable with greater weight when it came to informing the ECB’s monetary policy decisions. However, this lost relevance over time due to the excess liquidity in the financial system, as a result of banks’ greater access to ECB funds, which resulted in entities making more use of deposits.
The ultimate objective of the adjustment is to align the short-term interest rates of the money market with the decisions of the Governing Council, as well as to withdraw excess liquidity from the system so that it does not interfere with the correct transmission of monetary policy.
Inflation data
The inflation rate in the euro zone stood at 1.7% year-on-year in September, half a point below the rise of 2.2% observed the previous month and the lowest reading of the data since April 2021, according to the second estimate published this Thursday by the community statistics office, Eurostat.
The slowdown in prices in the common currency area reflected the 6.1% drop in the cost of energy after declining 3% year-on-year in August, while fresh food rebounded to 1.6%, five tenths more.
When discounting the impact of energy, the inflation rate was reduced by one tenth to 2.6%, although, if the cost of food, alcohol and tobacco was also excluded, the underlying rate moderated to 2.7% from 2. 8%.
Among Member States, the largest increase in the cost of living in September came from Romania (4.8%), Belgium (4.3%) and Poland (4.2%). On the other hand, the smallest increases were observed in Ireland (0%), Lithuania (0.4%) and in Slovenia (0.7%).
In the case of Spain, the interannual rate fell seven tenths, to 1.7%, which closed the price differential in our country with respect to those in the euro zone.
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