The European Central Bank (ECB) accelerate in the reduction of interest rates. The central bank has decided to apply another cut of 0.25 percentage points in the official price of money, with which the deposit facility rate, the reference rate since last month, goes from 3.5% to 3.25%.
It is about of the second consecutive cut and the third since June, after which the Eurobank decided to apply a pause before the summer. “In particular, the decision to lower the interest rate applicable to the deposit facility – the interest rate through which the Governing Council guides the direction of monetary policy – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the intensity of the transmission of monetary policy,” reads the statement issued by the issuing institute this Thursday.
Price control is seen in the short term, with the euro zone CPI at 1.8% in Septemberbelow the sacrosanct target of 2% for the first time in three years. There are even countries, such as Spainin which inflation reaches or is below 1.5%. But uncertainty about the economy weighs more heavily on his decision, with indicators such as PMI indexwhich measures manufacturing activity, at its worst level so far this year.
The Eurobank certifies that the most recent information on inflation shows that the “disinflation process continues as expected”, although it warns that the inflation outlook is also “affected by the recent downward surprises” in the inflation indicators. economic activity.
Even so, Inflation is expected to increase in the coming months and that it will subsequently decrease “to the objective during the next year”, as indicated in the estimates presented by the institution’s experts in September. “Domestic inflation remains high, given that Salaries continue to rise at a high rate. Likewise, pressures on labor costs are expected to continue to moderate gradually, in a context in which profits partially cushion their impact on inflation,” explains the central bank.
Maintains hard tone
The Governing Council of the ECB distances itself from any commitment in advance on the path of monetary policy and makes it clear to investors that it will maintain official interest rates at “sufficiently restrictive levels for as long as necessary to achieve that objective.” “The Governing Council will continue to apply a data-driven approach, in which decisions are made at each meeting, to determine the appropriate level of restriction and its duration,” he anticipates.
The ECB, which met in Slovenia, changes its paradigm and gives encouragement to the experts who discount that it will lower the official price of money in each of the appointments on monetary policy instead of the “quarter by quarter” planned previously.
With this expectation, rates could reach the neutral point, when it is considered that they have no impact on the economy, around 2% in June 2025. There are even voices, such as analysts at Bank of Americawhich they anticipate will reach 1.5% at the end of next year.
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