The overnight deposit rate will be reduced to 3.25%. The deposit facility rate is the interest rate by which the Governing Council of the ECB determines the direction of its monetary policy stance.
The rate of the main refinancing operations was lowered to 3.4% and the overnight lending rate – to 3.65%, the ECB statement said.
The new rates will come into effect on October 23.
“The Council’s decision to lower the interest rate on deposits is based on the updated assessment of the inflation outlook, the dynamics of core inflation and the power of monetary policy transmission. The received information on inflation shows that the process of inflation reduction is generally progressing as expected. The inflation outlook is also affected by the recent surprising deterioration of economic activity indicators. At the same time, financing conditions are still restrictive,” said the statement released after the council meeting.
Inflation is expected to increase in the coming months, but then decline to the target level over the next year. Domestic inflation has remained high, with wages still growing at an accelerated pace. At the same time, it is expected that labor cost pressure will continue to gradually ease, with profits partially amortizing its impact on inflation, the council said in a statement.
The Council states that it is committed to ensuring a timely return of inflation to its mid-term target of 2%. It will keep monetary policy interest rates at sufficiently restrictive levels for as long as necessary to achieve this objective. The Council’s approach to determining the extent and duration of restrictions will continue to be data-driven, with each meeting making a decision. More specifically, its decisions on interest rates will depend on the assessment of the inflation outlook, taking into account the received economic and financial data, the dynamics of core inflation and the power of monetary policy transmission. The Council does not commit in advance to move interest rates in a specific direction, the statement emphasized.
It has already been reported that the ECB cut all three interest rates at the previous meeting in September. Rates were left unchanged in July, but all three rates were cut by 0.25 percentage points at the previous meeting in June.
In order to combat high inflation, the ECB Council gradually raised interest rates to record highs for ten consecutive meetings from July 2022 to September 2023, but then kept them unchanged.
According to “Eurostat” data, annual inflation in the Eurozone decreased to 1.7% in September, compared to 2.2% in August, thus it fell below the 2% target set by the ECB for the first time in more than three years.