The interest rates applicable to the deposit facility, the main refinancing operations and the marginal lending facility will be reduced to, respectively, 3.00%, 3.15% and 3.40%.
The decision” is based on the updated assessment of the Governing Council inflation expectations,underlying inflation dynamics and the strength of monetary policy transmission“,according to the statement published this Thursday.
The European Central Bank is keeping the door open to further easing as inflation approaches its 2% target.
“The deflation process is on the right track,” ECB President Christine Lagarde said at a press conference. “In 2025, we will reach 2%”.
“Over time, the effects of restrictive monetary policies will be diluted and domestic demand will be able to increase. We are determined to ensure that inflation stabilizes in a sustainable manner up to the 2% target.
Lagarde admitted that ther had been “some discussion” about a possible reduction of 50 basis points, but that the consensus ended in deciding on a change of 25 basis points.
According to Lagarde,“domestic inflation is falling,but still highmainly because wages and prices in some sectors are still adjusting to the previous increase in inflation,with some delay”.
The Governing Council also discussed the “uncertainty” created by the election of Donald Trump in the United States and the political situation “in several EU countries”, said Christine Lagarde.
“This is all a question mark, because there is a difference between rhetoric and action,” he explained, referring in particular to the US President-elect’s promise to impose customs duties on European imports.
“Funding conditions to improve”
The central bank of the 20 countries that share the euro reduced the rate it pays on bank deposits, which determines funding conditions in the bloc, from 3.25% to 3.0%. In June, the rate was 4.0%, a record.
The European Commission also indicated that further cuts could be made, such as remove reference to maintaining “sufficiently restrictive” ratesa term meaning a level of borrowing costs that slows economic growth.There is no universal definition of what constitutes a restrictive rate, but economists generally place the neutral territory between 2% and 2.5%.
“Funding conditions are improving as recent BC Board interest rate cuts make new loans less expensive for businesses and households,” the entity said.
“But they remain firm, as monetary policy remains restrictive and previous interest rate increases are still being transmitted to the existing credit stock,” he says.
With a decision this Thursday, The ECB reduced the interest rate on loans to banks for a week to 3.15% and for one day to 3.40% as well..
These facilities have hardly been used in recent years because the ECB has provided the banking system with more reserves than necessary through massive bond purchases and long-term loans.
They may, however, become more relevant in the future, when those programs have ended.the ECB confirmed this Thursday that it will stop buying bonds under its Pandemic Emergency Purchase Program from this month.
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How does teh ECB plan to monitor and adjust its monetary policy in response to changing economic conditions?
Title: Navigating Economic Waters: An Interview wiht the European Central Bank’s Expert on Interest Rate Adjustments
Editor (Time.news): Welcome, and thank you for joining us today. With the recent proclamation from the European Central Bank (ECB) regarding interest rate cuts, many are eager to understand the implications of this decision. Could you start by giving us the details of the reductions?
Expert: Absolutely! The ECB has announced a reduction in the interest rates applicable to the deposit facility, the main refinancing operations, and the marginal lending facility. They are now set at 3.00%, 3.15%, and 3.40% respectively.This move reflects the ECB’s commitment to creating a favorable monetary surroundings.
Editor: Fascinating. What specific factors did the Governing Council consider when making this decision?
Expert: The decision was based on an updated assessment of several key elements, including inflation expectations, underlying inflation dynamics, and the strength of monetary policy transmission. Essentially, the ECB is keeping a close eye on how these factors influence the broader economy and thus, our monetary policy.
Editor: It sounds like a carefully considered strategy. The statement also mentioned keeping the door open for further easing—what does that entail?
Expert: Yes, the ECB has indicated that they are prepared to take additional steps if needed, especially as inflation approaches the targeted rate of 2%. This suggests they are willing to be flexible and responsive to economic conditions as they evolve.
editor: During the recent press conference, President Christine Lagarde asserted, “The deflation process is on the right track… In 2025, we will reach 2%.” How should we interpret this statement in the context of current economic conditions?
Expert: president Lagarde’s statement is optimistic and projects confidence in the ECB’s strategy. If the projections hold true,it suggests that our efforts in managing inflation could lead to a stable economic environment by 2025. The central bank believes the path to stability is being laid out, but of course, this is subject to various external and internal economic factors.
Editor: So,what does this mean for consumers and businesses in the Eurozone in the immediate and long-term future?
Expert: In the immediate term,we can expect some relief for consumers and businesses as lower interest rates can stimulate borrowing and spending. However, over time, as the effects of these restrictive monetary policies dilute, domestic demand should increase. This might create a pathway to sustainable economic growth, ultimately supporting the desired inflation rate.
Editor: It’s intriguing to see how these monetary policies intertwine with real-world economic behavior. So,what steps should consumers take in response to this shift?
Expert: Consumers should consider reviewing their financial strategies. Lower interest rates can lead to better opportunities for loans and mortgages, but it’s vital to remain cautious. Staying informed about the economic landscape will help individuals make better financial decisions.
Editor: Thank you for that insight! Lastly, what is the broad message you woudl like to convey about the ECB’s approach moving forward?
Expert: The ECB remains committed to ensuring that inflation stabilizes sustainably around the 2% target.The message is clear: we are monitoring economic indicators closely, and we are prepared to act decisively in the face of changing conditions to support the economy.
editor: Thank you for your valuable insights today. It’s evident that the ECB is navigating a complex economic landscape, and your expertise has illuminated the factors at play.
Expert: Thank you for having me; it’s a pleasure to discuss these crucial topics.