ECB Slows Down Monetary Tightening: Is a Break Coming After Eight Rate Cuts Since Last Summer?
Attention to rate cuts from summer 2024 onwards: Is the ECB currently on hold with Heidoro-DD-Out? - Central Bank expands monetary easing moves, pausing after eighth interest rate decrease initiated in summer 2024, prompting pondering over actual halt in monetary policy adjustments.
Here's the lowdown on the European Central Bank (ECB)'s recent moves to alleviate economic pressures, such as trade disputes and dwindling inflation rates:
Rate Adjustments
- The Deposit Facility Rate, the interest rate paid to banks for parking their money with the ECB, decreased by 0.25 percentage points to 2%.
- The Main Refinancing Operations Rate, which impacts banks' short-term borrowing, was reduced to 2.15%.
- The Marginal Lending Facility Rate for emergency loans, rose slightly to 2.40% [1][3].
Inflation Forecast
- Overall Inflation Estimates: ECB projects an average of 2% inflation in 2025, 1.6% in 2026, before reaching 2% again in 2027 [1][3].
- Core Inflation Figures (excluding energy and food): Predicted at 2.4% for 2025 and 1.9% for both 2026 and 2027 [3].
Economic Context and Motivation Behind Policy
- Trade Conflicts Influence: Trade policy uncertainties might negatively impact business investments and exports but might be offset by long-term government spending on defense and infrastructure [1][3].
- Monetary Policy's Role: ECB seeks to strengthen the policy's transmission mechanism to make the economy more resilient to global shocks [3].
- GDP Growth Expectations: Real GDP growth is projected at 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027 [3].
Future Steps
- Additional Cuts Possible: Markets speculate that the current easing cycle might reach its end soon, with a September cut still possible, although less certain [2].
- Stable Policy Phase: It's likely that the ECB will enter a longer phase of monetary policy stability following the June cuts [2].
The ECB's latest policy strategy seeks a delicate balance between economic growth and controlled inflation within the context of global trade tensions and dwindling energy prices.
- The European Central Bank (ECB) is considering additional cuts to its employment policy, especially with regard to the Main Refinancing Operations Rate, to support businesses that are facing challenges due to trade disputes and dwindling inflation rates.
- As part of the ECB's strategy to strengthen the economy's resilience to global shocks, they are planning to review and potentially update their community policy and finance policies to better align with long-term government spending on defense and infrastructure, as well as manage the balance between economic growth and controlled inflation.
