The European Central Bank cut its key interest rate by 25 basis points on Thursday, as expected, as policymakers say the process of defusing inflation is on track, although policymakers remain concerned about inflation. is strengthening. health euro area economy This follows some soft data released since the September policy meeting.
The ECB's Governing Council, led by Christine Lagarde, cut the deposit facility interest rate by a quarter of a basis point to 3.25% after a rate-setting meeting in Slovenia's capital Ljubljana.
“…the Board’s decision to reduce the deposit facility rate, the rate at which it determines its monetary policy stance, is based on its latest assessment of the inflation outlook, underlying inflation dynamics, and the strength of monetary policy spillovers. ” he said. The ECB made this clear.
It was widely expected that the single bloc's central bank would cut interest rates by the same amount in September, and then opt to cut rates only in December.
But economic data since the September meeting reinforced expectations that cuts were imminent. Although headline inflation has slowed significantly, core inflation has not eased as quickly as the central bank would like.
Moreover, there are increasing indicators, including surveys of purchasing managers and bank lending data, that point to a weakening of the eurozone economy, which the central bank has acknowledged in its policy statement. ECB policymakers are also beginning to question the resilience of the labor market.
Lagarde also answered questions from reporters at a press conference after the decision and expressed some concerns about recent economic indicators. He said the latest decision on the rate cut was unanimous.
The ECB President clearly refused to commit to easing upfront in December, instead emphasizing a data-dependent approach. In response to a question, he said the ECB had not yet completely “broken the neck of inflation”. Lagarde said the bank was still aiming for a soft landing.
Policymakers will receive the latest ECB staff macroeconomic forecasts in December.
The ECB has left its forward guidance on interest rates unchanged.
The ECB said policy rates would remain sufficiently restrictive for as long as necessary to bring euro zone inflation back to its 2% target.
“The board will continue to rely on data and follow a meeting-by-meeting approach to determine the appropriate level and duration of restrictions,” the bank said.
The bank reiterated that “the board has not committed in advance to a specific interest rate path.”
Carsten Brzeski, an economist at ING, said the ECB's decision to cut interest rates, just five weeks after the last rate cut and with little economic data since then, has made the ECB's decision to lower the eurozone's growth prospects and the risk of an inflation undershoot more likely. He said he must have been even more concerned. target.
The latest rate cut signals the ECB's haste to lower interest rates to more neutral levels, the economist added.
Capital Economics economist Jack Allen Reynolds said data released in the coming weeks would likely support rate cuts of at least 25 basis points in each of the next few meetings.
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