European Central Bank Cuts Interest Rate Fourth Time in 2024, Lowers Inflation Forecast
The European Central Bank (ECB) announced its fourth interest rate cut of 2024, lowering the deposit facility to 3% from 4% since September 2023. The move confirms market expectations of a quarter-percentage-point cut.
The ECB also revised down its inflation forecast for 2024 to 2.4% from 2.5% and for 2025 to 2.1% from 2.2%. The institution now expects weaker growth this and next year, with the euro zone economy growing at 0.7% in 2024 and 1.1% in 2025, down from previous forecasts of 0.8% and 1.3% respectively.
Risks to economic growth remain tilted to the downside, according to ECB President Christine Lagarde, citing potential friction in global trade and lower consumer and business confidence. The institution is also grappling with the uncertainty surrounding proposed tariffs by U.S. President-elect Donald Trump.
Although some members of the ECB’s Governing Council proposed a 50-basis-point rate cut, a 25-basis-point reduction was decided upon, as inflation projections had converged towards 2% for six consecutive projections, wage pressures had decreased, and service sector inflation remained high. The ECB wants to see a change in the composition of inflation before feeling confident it is close to its 2% target.