European Central Bank (ECB) cuts main interest rate to 3.75%
On Thursday, June 6, 2024, the European Central Bank (ECB) confirmed that it had cut main interest rates from 4% when it last increased them in September 2023 to 3.75% following its meeting in Frankfurt, Germany. This increase follows a similar move made by the apex bank (The Bank of Canada) in Canada.
According to the press release by the ECB, the decision was “based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission’. It deemed it appropriate to moderate the degree of monetary policy restriction after nine months of steady holding rates.
The statement also read that “since the Governing Council meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly. Underlying inflation has also eased, reinforcing the signs that price pressures have weakened and inflation expectations have declined at all horizons. Monetary policy has kept financing conditions restrictive. By dampening demand and keeping inflation expectations well anchored, this has made a major contribution to bringing inflation back down”.
In the statement, the revised inflation rate is expected to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. For inflation, excluding energy and food, staff project an average of 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026. Economic growth is expected to rise to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.
For many people in the UK, the ECB's decision may be a significant indicator of what's to come, given the current inflation rate in the UK, when the Bank of England (BOE) holds its next Monetary Policy Committee Meeting on Thursday, 20 June 2024.
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