ECB slashes interest rates for second time in three months By Investing.com

Investing.com — The European Central Bank slashed interest rates again as expected at its latest monetary policy gathering, as officials mull sluggishness in the eurozone economy and fading inflationary pressures.

The rate-setting Governing Council said it had lowered its deposit facility rate — the mechanism through which it steers monetary policy — by 25 basis points to 3.5%. The rates on the main refinancing operations

In July, the European Central Bank left its benchmark deposit rate unchanged at 3.75%, after cutting it from an all-time high of 4% in June. 

Since that meeting, headline inflation in the eurozone currency area has slowed to a two-year low of 2.2%. Although services inflation has edged higher, some economists have noted that much of the uptick is likely due to the impact of the Paris Olympics, the Financial Times reported.

Thursday’s decision comes as the Federal Reserve is also widely tipped to begin ratcheting down borrowing costs next week, in a sign that central banks around the world are reacting to waning in once surging inflation.

Policymakers noted that the recent inflation figures have come in broadly as anticipated, leading the ECB to confirm its prior outlook for price growth averaging 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026.

Officials did nudge up their forecast for “core” inflation — stripping out volatile items like food and fuel — over 2024 and 2025. They also warned that domestic price gains remained high due to wages ticking up at an “elevated pace,” but added that labot cost pressures are moderating and “profits are partially buffering the impact of higher wages on inflation.”

The ECB slightly lowered its forecast for eurozone economic growth, saying it expects a smaller contribution from domestic demand in the coming quarters.

In a note to clients, analysts at Capital Economics said these changes are “too small to have much impact on expected monetary policy decisions.”

Speaking in a press conference following the decision, ECB President Christine Lagarde stressed that the central bank was not “committed” to a particular rate path and will remain data-dependent prior to making future policy moves.

This is a developing story. Please check back later for updates.