![“By dampening demand and keeping inflation expectations well anchored, this [monetary policy] has made a major contribution to bringing inflation back down,” stated European Central Bank president Christine Lagarde on 6 June 2024, following the governing council’s decision to take a haircut of 25bps on key interest rates. Photo: European Central Bank](https://assets.paperjam.lu/images/articles/ecb-keeps-word-with-25bps-rate/0.5/0.5/640/426/657556.jpg)
The European Central Bank’s governing council, led by ECB president Christine Lagarde, on Thursday 6 June its first rate cut since September 2019. While the monetary policy decision was largely by market analysts and economists, the 25 basis point reduction, though welcomed, was not the main focus of the markets. Instead, attention was directed towards future expectations. With four more policy meetings scheduled for the remainder of the year, Lagarde’s remarks are eagerly anticipated.
The three key interest rates--the main refinancing operations, the marginal lending facility, and the deposit facility--will be set at 4.25%, 4.50%, and 3.75%, respectively, effective from 12 June 2024.
In a statement, Lagarde noted that, following an updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission, “it is now appropriate to moderate the degree of monetary policy restriction after nine months of maintaining steady rates.” Furthermore, since the governing council meeting in September 2023, euro area inflation has declined by more than 2.5 percentage points, and the inflation outlook has significantly improved.
However, she cautioned that despite the progress seen in recent quarters, domestic price pressures remain robust due to elevated wage growth, and inflation is expected to remain above target well into the next year. As a result, the latest Eurosystem staff projections for both headline and core inflation have been revised upwards for 2024 and 2025 compared to the March projections. The projections now anticipate headline inflation to average 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
In providing insights into potential interest rate adjustments in the future, Lagarde reiterated that the governing council will continue its “data-dependent and meeting-by-meeting strategy” to assess the suitable degree and duration of restriction.
To not leave any ambiguity, Lagarde clarified: “We are not pre-committing to a particular rate path,” keeping all options on table for next council meetings.
The rate-setting body will convene again for its next meeting on 18 July 2024.