The European Central Bank (ECB) has once again decreased its benchmark interest rate by 25 basis points, aligning with economists' predictions. This decision reflects the policymakers’ belief that the disinflation process is progressing as anticipated, although concerns about economic growth persist.
Under the leadership of ECB President Christine Lagarde, the Governing Council reduced the deposit rate, its key monetary policy tool, by a quarter-point, bringing it down to 3.00 percent. This follows a similar reduction in October after yet another comparable adjustment in September.
Furthermore, the main refinancing rate, often referred to as the refi rate, has been cut to 3.15 percent, while the marginal lending facility rate now stands at 3.40 percent.
The ECB stated that it will adopt a data-driven and meeting-by-meeting strategy in setting its monetary policy stance. Interest rate decisions will be guided by "an assessment of the inflation outlook, considering incoming economic and financial data, the behavior of underlying inflation, and the effectiveness of monetary policy transmission," the bank explained.
The ECB made it clear that it is not committed to any specific interest rate trajectory at this time.
In its most recent macroeconomic projections released on Thursday, ECB staff predicted that headline inflation in the Eurozone would be 2.4 percent this year, 2.1 percent in 2024, 1.9 percent in 2026, and 2.1 percent in 2027.
Core inflation figures are expected to reach 2.9 percent this year, decrease to 2.3 percent next year, and settle at 1.9 percent for both 2026 and 2027.
The Eurozone's economic growth is projected to be 0.7 percent this year, rising to 1.1 percent in 2024, 1.4 percent in 2026, and 1.3 percent in 2027.
ECB staff now envisage a slower economic recovery than previously forecasted in September. The anticipated recovery largely relies on rising real incomes, which should enable increased consumer spending, and a boost in business investment. The central bank also expects that the diminishing impact of earlier restrictive monetary policies will contribute to an upswing in domestic demand.
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