In a move that was widely anticipated by the markets, the European Central Bank slashed its key interest rate to 3.25% during its October meeting, marking the third quarter-point reduction in 2024. This decision was driven by policymakers’ concerns over diminishing inflationary pressures and a deteriorating growth forecast.
Following the announcement, the ECB’s Governing Council expressed confidence in the progress of disinflation, stating that they are on the right path. The central bank highlighted the impact of recent negative surprises in economic indicators on the inflation outlook.
September saw headline price increases in the euro area ease to 1.8%, falling below the ECB’s targeted 2% for the first time in three years. Despite this, the ECB projected a temporary increase in inflation over the next few months, followed by a return to target levels by the following year.
This consecutive rate cut is a rare move for the ECB, the last instance being in December 2011. ECB President, Christine Lagarde, explained during a press conference that the council only considered a 25 basis point reduction, unlike the U.S. Federal Reserve’s 50 basis point cut in September.
