The European Central Bank delivered the interest-rate reduction it’s been flagging for months — moving away from a record high — but stopped short of indicating more may follow.
Officials led by President Christine Lagarde lowered the key deposit rate by a quarter-point to 3.75% on Thursday, as expected. Having kept it at 4% for nine months, they said the inflation outlook has improved “markedly,” though they also raised projections for prices.
“The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction,” the ECB said in a statement. “The Governing Council is not pre-committing to a particular rate path.”
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Money markets held onto bets that the next cut will probably be in September. The euro rose 0.1% to US$1.0880 ($1.47) and the yield on 10-year German bonds climbed four basis points to 2.55%.
An updated quarterly outlook published alongside the ECB’s policy statement forecasts inflation averaging 2.2% in 2025, with this year’s projection for economic expansion lifted to 0.9% from 0.6% before.
Lagarde will hold a news conference at 2.45pm in Frankfurt to elaborate on the ECB’s decisions.
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The run-up to Thursday’s meeting saw policymakers leave little room for doubt in their intention to lower rates — even after some of the economic numbers they’d hoped would back their case moved in the wrong direction.
Inflation, for one, quickened more than anticipated in May, with a gauge of underlying trends also wrong-footing analysts by edging higher. Elsewhere, wage rises failed to moderate in the first quarter — suggesting elevated growth in services prices will persist. Another crucial measure of pay is due Friday and may paint a similar picture.
The economy, meanwhile, has bounced back more forcefully than expected from its malaise. Aside from the outperformance in growth, unemployment hit an all-time low in April and the troubled manufacturing sector is finally showing signs of life.
ECB Chief Economist Philip Lane has said inflation and wage gains will “bounce around” this year, even as the general trend is for them to abate. Policy must continue to restrict activity throughout 2024, he says.
While the ECB has now cut before both the Fed and the BOE, which are grappling with more stubborn price pressures and are only expected to follow suit in the coming months, counterparts in other parts of the world have already started easing.
The Bank of Canada reduced its benchmark rate on Wednesday and said more moves may come — becoming the first Group of Seven central bank to do so since the biggest global inflation shock since the 1970s erupted. In Europe, Sweden’s Riksbank and the Swiss National Bank are among those to have already eased.
- Testing QA no missing part in article
- Good testing no blaming hehhehe
