The European Central Bank (ECB) is lowering its key interest rates by a quarter of a point on Thursday, September 12, 2024. This is a cautious reduction given that inflation in the eurozone slowed to 2.2% in August 2024 and that the European economy remains very weak. However, uncertainty remains as to whether further reductions will continue this year.
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The reference rate of the ECB goes from 3.75% to 3.5%. A new step, after an initial drop in Juneintended to loosen the credit grip on households and businesses, according to the president of the institution, Christine LagardeThis is a breath of fresh air for borrowers as well as for indebted member states, because a drop in rates means an easing of credit conditions for public borrowing.
This 0.25% drop is intended to be cautious. Energy prices are falling, as are food prices. But inflation is not expected to fall below 2% until 2026. At the same time, growth remains very weak. Gross domestic product in the eurozone is expected to grow by just 0.8% this year, then by 1.3% in 2025.
The balance therefore remains fragile, and it is now that governments must act to reduce budget deficits, insisted the head of the ECB, who also welcomed the report on the European economy presented by his predecessorformer Italian Prime Minister Mario Draghi, earlier this week:
” Implementing the European Union rules fully, transparently and without delay will help governments reduce budget deficits and debt. Governments should now make a strong commitment to change their fiscal policies. Some of Mario Draghi’s proposals go in this direction. If productivity can increase as a result of structural reforms, that would be very good news for us; if the Capital Markets Union can be implemented and if more funding is available for innovation and to increase the competitiveness of the European economy, all of this could support the work we are doing. »
But the timing of further rate cuts is more uncertain. The Frankfurt institution will have to assess the risks and proceed with small touches rather than significant rate cuts by the end of the year. The next ECB Governing Council will take place on October 17 in Ljubljana, the Slovenian capital.