The European Central Bank (ECB) has cut interest rates for the third time, marking the first consecutive rate cut in 13 years. The move follows a 25-basis point interest rate cut, reflecting a faster-than-expected decline in inflation and deteriorating economic conditions across the eurozone. Eurozone inflation fell to 1.8% in September, the lowest level since 2021 and below the ECB's 2% target. Even more worrying is the deteriorating economic outlook, particularly in Germany, where the economy is expected to contract for the second year in a row in 2024.
This change in ECB policy followed previous predictions that borrowing costs would fall only quarterly. The first rate cut was in June, followed by another in September, with central bankers hinting at further rate cuts. Today, the ECB Governing Council announced a 25 basis point reduction in the deposit facility rate, which directs the ECB's monetary policy. The rate cut was based on the latest inflation assessments and weaker-than-expected economic activity.
Inflation may rise in the coming months, but is expected to return to target next year. Domestic inflation remains high due to wage increases, but labor cost pressures are expected to gradually ease. Despite tight funding conditions, the ECB remains committed to closely monitoring inflation trends.
