ECB Cuts Rates for Fourth Time This Year
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The European Central Bank (ECB) cut interest rates for the fourth time in 2024, signaling continued easing ahead as inflation moderates and the Eurozone economy remains sluggish.
The central bank reduced the deposit rate, which influences borrowing costs across the bloc, to 3.0% from 3.25%. This rate, which was as high as 4.0% in June, is now at a significantly lower level.
The ECB's decision also included a notable shift in its forward guidance. The bank removed language previously stating that rates would be kept "sufficiently restrictive," indicating a willingness to further loosen monetary policy.
"Financing conditions are easing, as the Governing Council’s recent interest rate cuts gradually make new borrowing less expensive for firms and households," the ECB stated. "But they continue to be tight because monetary policy remains restrictive and past interest rate hikes are still transmitting to the outstanding stock of credit."
The ECB's definition of a restrictive rate remains unspecified. However, economists generally place neutral territory, where rates neither stimulate nor restrain growth, between 2% and 2.5%.
The ECB also expects "a slower economic recovery" than the previous projections in September.
Thursday's decision also saw cuts to the rates at which the ECB lends to banks for one week and one day, down to 3.15% and 3.40%, respectively. These facilities have been minimally used in recent years as the ECB has provided ample reserves to the banking system through extensive bond purchases and long-term loans.
However, these facilities may become more relevant as these programs conclude. The ECB confirmed on Thursday that its Pandemic Emergency Purchase Programme would end this month.