European Central Bank continues to cut rates

The European Central Bank (ECB) has announced a further reduction in its key interest rates, lowering them by 25 basis points (0.25 per cent). This decision reflects the ECB’s updated assessment of inflation trends, underlying price pressures, and the effectiveness of its monetary policy transmission, it said in a statement.

Effective from 5th February 2025, the three key ECB interest rates will be adjusted as follows:
• Deposit facility rate: Reduced to 2.75 per cent
• Main refinancing operations rate: Reduced to 2.90 per cent
• Marginal lending facility rate: Reduced to 3.15 per cent

The deposit facility rate, which plays a crucial role in guiding the ECB’s monetary policy stance, has been reduced in light of inflation developments.

Inflation is on track to return to the central bank’s two per cent medium-term target this year, and underlying inflation measures suggest price stability is being achieved.

While domestic inflation remains elevated due to wage adjustments, wage growth is slowing, and corporate profits are absorbing some inflationary pressures.

The ECB’s rate cuts are gradually easing borrowing costs for businesses and households. However, overall financing conditions remain tight as past interest rate hikes continue to influence credit markets. Although economic headwinds persist, improving real incomes and the diminishing impact of restrictive monetary policy are expected to support demand recovery, it said.

The ECB also reiterated its commitment to ensuring inflation stabilises sustainably at its two per cent target. Future policy decisions will be data-driven and made on a meeting-by-meeting basis, with no pre-commitment to a specific rate path.