The European Central Bank (ECB) released a press statement on September 12, 2024, announcing a decision to lower the deposit facility rate by 25 basis points. This move was made after an updated assessment of inflation trends, underlying inflation dynamics, and the effectiveness of monetary policy. The ECB aims to reduce the degree of monetary restriction while ensuring inflation gradually returns to its medium-term target of 2%. The latest projections show inflation rates of 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. Core inflation for 2024 and 2025 has been revised upward due to higher-than-expected services inflation.
Domestic inflation remains high, driven by rising wages, but labor cost pressures are starting to moderate. Economic growth projections have been slightly downgraded, with growth expected to reach 0.8% in 2024, 1.3% in 2025, and 1.5% in 2026, mainly due to weaker domestic demand.
The ECB reiterated its commitment to returning inflation to its 2% target and maintaining a restrictive monetary policy stance as long as necessary. Interest rate decisions will remain data-driven and decided on a meeting-by-meeting basis.
As of September 18, 2024, changes in the operational framework will take effect. The spread between the deposit facility rate and the main refinancing operations will be set at 15 basis points, while the marginal lending facility spread remains at 25 basis points. The new deposit facility rate will be 3.50%, the refinancing rate will be 3.65%, and the marginal lending rate will be 3.90%.
The ECB also addressed its asset purchase programs (APP and PEPP). The APP portfolio is gradually being reduced, and the PEPP portfolio is declining by €7.5 billion per month, with reinvestments under the PEPP set to end by the close of 2024. However, flexibility in reinvestments will continue to counter risks related to the transmission of monetary policy. Lastly, the ECB indicated its readiness to adjust its instruments as needed to ensure price stability and effective monetary policy transmission across the euro area.
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