BCE cuts interest rates by 25 basis points for the 4th time.

New interest rate cut by the ECB marks the 4th of the year.

The European Central Bank (ECB) announced today a 25 basis points reduction in its three main policy interest rates, for the 4th time in 2024.

The reference benchmark interest rate for permanent deposit facility was reduced to 3%, while the rate for main refinancing operations decreased to 3.15% and the rate for permanent liquidity-providing facility was lowered to 3.40%.

According to the statement released, as read in the Notícias ao Minuto, the decision "is based on the updated assessment of the ECB Council on inflation prospects, underlying inflation dynamics and the effectiveness of monetary policy transmission".

Although the recent reductions in interest rates are slightly easing financing conditions, the ECB stresses that "these remain restrictive, as monetary policy maintains its restrictive nature and previous interest rate hikes are still being transmitted to the outstanding stock of credit."

About the future path, the ECB reiterates being "determined to ensure that inflation stabilizes sustainably" at its medium-term target of 2%. To do so, it will continue to adopt a data-dependent approach, analyzing monetary policy at each meeting.

During the press conference, ECB President Christine Lagarde emphasized: "We have not yet fully met the mission, but inflation is moving towards the 2% target in the medium term," which allowed the decision to reduce interest rates.

Lagarde revealed that the Council discussed the possibility of a 50 basis points cut, but opted for 25 points, taking into account factors such as wages, profits, and productivity, which "show positive signs". 

"Much has already been done: we have cut interest rates four times this year, totaling 100 basis points. We are in a completely different economic context," emphasized Lagarde.

Questioned about the potential implementation of higher trade tariffs by Donald Trump, in case he moves forward with protectionist measures, Lagarde reiterated that "trade restrictions and protectionist measures do not boost growth and have uncertain effects on inflation".

The ECB also released its latest economic projections, estimating inflation at 2.4% in 2024, 2.1% in 2025, 1.9% in 2026, and 2.1% in 2027. Regarding economic growth in the eurozone, forecasts have been revised downwards, with expectations of 0.7% in 2024, 1.1% in 2025, 1.4% in 2026, and 1.3% in 2027.

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