CB meets market expectations - future path data-dependent: The ECB Council has lowered key interest rates in the Eurozone as expected. No promises are made for the future. The plan is to orient itself based on the data situation. The European Central Bank (ECB) has lowered the key interest rate by 25 basis points to 4,25 percent. The deposit rate is also correspondingly reduced to 3,75 percent.

«Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission, it is now appropriate to reduce the degree of monetary policy tightening after the key interest rates had remained unchanged for nine months,» the press release on the decision states.

Inflation still above target

Since September 2023, inflation has decreased by more than 2,5 percentage points, and the inflation outlook has significantly improved since then, the ECB elaborates. At the same time, domestic price pressures remain high due to strong wage growth, although they have eased somewhat in recent quarters. Inflation is expected to remain above the monetary policy target of 2,0 percent well into next year.

The new projection is higher than that of March. Now, an average inflation rate of 2,5 percent is expected for 2024, and 2,2 percent and 1,9 percent for the following two years.

Decision dependent on data situation

The target value of 2 percent is maintained. The ECB Council will keep the key interest rates «sufficiently restrictive for as long as necessary.» The determination of the appropriate level and duration of the restrictive stance will also depend on the data situation in the future and will be decided from meeting to meeting.