The European Central Bank lowered its key rates by 0.25 points on Thursday, in response to inflation close to its target and a growth forecast revised downwards.
The Frankfurt institute has at the same time signaled that it will leave the restrictive framework of its monetary policy.
This further reduction of 0.25 percentage points brings the deposit rate, which serves as a benchmark for credit conditions in the economy, to 3.0%. The disinflation process “is on track” but is accompanied by “a slower economic recovery” than anticipated in September, estimate in a press release the 25 members of the ECB Governing Council chaired by Christine Lagarde.
With this third drop in a row in the interest rate, and the fourth since June, the ECB is amplifying the turn taken to lower the borrowing costs of households and businesses. This cycle follows a period of drastic monetary tightening to deal with high inflation, linked to the war in Ukraine and the post-Covid recovery.
This is the scenario expected by the majority of observers which prevailed, the guardians of the euro renouncing a more daring rate cut, of 0.5 percentage points, in the face of the deterioration of growth and the rapid drop in inflation. The new economic projections published Thursday by the ECB supported the decisions of the day: the institute lowered its growth forecasts for 2024 to 2026 and inflation forecasts for 2024 and 2025.
If the timetable for additional rate cuts remains uncertain, the ECB nevertheless abandoned a key passage from its press release on its decisions which previously indicated that rates should remain “restrictive for as long as necessary” to bring inflation back to normal. objective. Instead, it says that “over time, the gradual easing of the effects of restrictive monetary policy should support a recovery in domestic demand.”
The anticipated recovery should be based “mainly on the rise in real wages”, which bodes well for household consumption, and on “the increase in business investment”, according to the ECB.
Political crises
Before the ECB, the Swiss National Bank (SNB) for its part created a surprise by reducing its key rate by half a percentage point to bring it down to 0.50%, arguing that “uncertainty regarding the outlook economic growth has increased in recent months,” according to a press release. The discussion between euro guardians took place against the backdrop of political turmoil gripping two main eurozone economies, Germany and France, which are also likely to dampen growth.
While waiting – probably Thursday evening – for the appointment of a successor to the post of Prime Minister after the fall of the Barnier government, France, economically weakened, is for the moment without a budget for 2025, with a public deficit skidding this year to 6 .1% of gross domestic product (GDP). If the political crisis were to persist in France and its borrowing conditions deteriorate too much, the ECB could act symbolically via its Transmission Protection Instrument, through debt buybacks on the market, to prevent any contagion to other countries. .
Ms. Lagarde, former tenant of Bercy, should be questioned on this subject during a press conference starting at 3:45 p.m. Germany is also in the midst of a period of uncertainty. In addition to the industrial crisis it is going through, it is heading towards early elections in February, after the collapse of the coalition of Social Democratic Chancellor Olaf Scholz in October.
A delay in the formation of the future government in Berlin would further complicate the recovery of Europe’s largest economy, weakened by an industrial slowdown which has lasted for two years and which is already affecting its partners. The imminent return of Donald Trump to the White House is also worrying, with the implementation of a protectionist policy which could slow down exports and therefore the growth of the euro zone.
In the United States, inflation accelerated in November, to 2.7% year-on-year, fueling fears that the curve would remain on this trajectory. Enough to complicate the task of the American Central Bank (Fed) which meets next week.
This article was automatically published. Sources: ats / awp / afp
