After five years of increases to deal with inflation, the ECB reversed the trend this week by lowering its three key rates. A maneuver which will undoubtedly be followed by others before the end of the year.
Since 2019, inflation in the Eurozone has increased sharply. It reached its peak in 2022, standing at 10.6%. A record due to the surge in energy prices, a consequence of the war in Ukraine and the disruptions in global supply chains which had still not returned to a normal pace after the Covid-19 pandemic.
Due to high inflation, the European Central Bank (ECB) has successively increased its key interest rates. However, for several months, inflation has returned to low levels in Europe, reaching 2.6% in May and 2.4% in April, four times lower than in 2022. The objective at present is to reduce the rise in consumer prices in the euro zone to 2% by 2025.
On Thursday, the ECB therefore announced the reduction of its three key rates by 25 basis points. In detail, the deposit facility rate increases from 4.0% to 3.75%, that of refinancing from 4.5% to 4.25% and, finally, the marginal lending facility rate increases from 4. 75% to 4.5%.
Other similar maneuvers from the ECB in 2024?
This is the first rate cut that the Frankfurt institution has announced in almost five years, and it will probably not be the last. For the month of July, many Central Bank officials are calling for a break. These officials, including Isabel Schnabel and Klaas Knot, believe that the ECB’s next maneuver could be at least September. “ The Governing Council will maintain a data-driven, meeting-by-meeting approach to appropriately determine the degree and duration of this restrictive guidance. », Details the ECB in a press release.
As for economists, we expect two further cuts in the ECB’s key rates in 2024, one in September and another in December. As a reminder, at the start of the year, the markets expected more than five declines in 2024. A scenario which has a very low chance of materializing.
