The European Central Bank (ECB) applied a cut in interest rates of 25 basis points; the first since 2019, according to the director of the entity, Christine Lagarde.

The rate cut comes after a nine-month period of the highest levels in the region. In this sense, the ECB indicated that the interest rate for the main refinancing operations will drop to 4.25 %. On the other hand, the interest rate on the marginal credit facility will be reduced to 4.5 % and that on the deposit facility will decrease to 3.75 %, with effect from June 12.

According to Lagarde’s statement, core inflation has moderated, a positive sign of the weakening of pressures on this indicator. “Monetary policy has maintained restrictive financing conditions, which, by slowing demand and keeping inflation expectations firmly anchored, has contributed significantly to the decline in inflation,” the official stressed.

The ECB report reflects the latest projections by Eurosystem experts for general and underlying inflation that “have been revised upwards for 2024 and 2025 compared to the March projections. Experts now estimate that headline inflation will average 2.5 % in 2024, 2.2 % in 2025 and 1.9 % in 2026. They also predict that inflation, excluding energy and food, will average 2.8 % in 2024, 2.2 % in 2025 and 2.0 % in 2026. Economic growth is expected to advance to 0.9 % in 2024, 1.4 % in 2025 and 1.6 % in 2026.”

The next decisions regarding interest rates will depend on an approach dependent on data from the European scenario and which will set the tone for the following restrictions as well as their duration.

M.Pino

Source: Diario Financiero

(Reference image source: Charlotte Venema in Unsplash)

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