MNI ECB WATCH: ECB Cuts 25BP, Does Not Commit To Rate Path
MNI (FRANKFURT) - The European Central Bank cut its key interest rate by 25 basis points on Thursday but said it was not committing to a predetermined rate path.
The direction of the central bank is obvious but not predetermined “in terms of sequence or volume,” President Christine Lagarde told a news conference, when was asked about another possible cut in October, adding that the ECB will persist with its meeting-by-meeting, data-dependent approach. (See MNI SOURCES: ECB To Avoid Clear Rate Path, Sept Cut Baked In)
“Data dependent does not mean data point dependent. We are not looking at just one indicator”, Lagarde said. Thursday’s decision for to cut rates was unanimous, she said.
The ECB kept its inflation outlook unchanged from its June projections, with inflation converging to the 2% target in the second half of 2025, and with price increases averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.
Growth projections were cut by a tenth of a percentage point for the three-year period, to 0.8% in 2024, 1.3% in 2025 and 1.5% in 2026. But the ECB saw slightly higher core inflation, up by 0.1 percentage point this year and next, at 2.9% and 2.3%, though its projection for 2026 was unchanged at 2%.
UNDERLYING INFLATION “NOT SATISFACTORY”
Lagarde welcomed the progress on wage and labour market dynamics, but said that the underlying inflation numbers are “not satisfactory”.
As to where the ECB sees the neutral rate, Lagarde noted that the ECB will only be able to judge when policy becomes sufficiently restrictive in retrospect, and that the moment to discuss the matter has still to arrive.
Asked about the landmark report on European competitiveness by former ECB president Mario Draghi report, Lagarde said reforms it recommended would assist the ECB in ensuring price stability.
The ECB also confirmed the deposit facility as the benchmark rate and tightened the spreads for the main lending rates, with the Main Refinancing Operation and the Marginal Lending Facility now priced at 15 and 40bps over DFR, changes first laid out in the March operation framework review. (See MNI: ECB Rate Shift Gives Added Focus To Deposit Facility Rate)