The European Central Bank (ECB) announced its fifth rate cut since June with the lowering of three interest rates by 25 basis points.
The rates on the deposit facility, the main refinancing operations and the marginal lending facility will be decreased to 2.75%, 2.90% and 3.15% respectively, effective Feb. 5.
“In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission,” said the ECB in a statement. “The disinflation process is well on track. Inflation has continued to develop broadly in line with the staff projections and is set to return to the Governing Council’s 2% medium-term target in the course of this year.”
The ECB added, “The Governing Council’s recent interest rate cuts are gradually making new borrowing less expensive for firms and households. At the same time, financing conditions continue to be tight, also because monetary policy remains restrictive and past interest rate hikes are still transmitting to the stock of credit, with some maturing loans being rolled over at higher rates. The economy is still facing headwinds but rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time.”
The ECB follows yesterday’s decision by the Bank of Canada to enact its own rate cut. However, the Federal Reserve decided not to maintain the current rate for its first policy decision of 2025.