ECB Delivers Third Rate Cut of 2024, Lowering Deposit Rate to 3.25% as Eurozone Inflation Falls Below Target

The European Central Bank cut its deposit rate by a quarter of a percentage point to 3.25% on 17 October 2024, marking the third reduction of the year and the first back-to-back cut since the euro crisis in 2011, The Guardian reported. The decision came as eurozone inflation fell to 1.7% in September, below the ECB's 2% target for the first time since 2016, and with Germany on the brink of recession.

Key details

• Deposit rate cut from 3.50% to 3.25% — third reduction in 2024
• First back-to-back cuts since the 2011 euro crisis
• Eurozone inflation: 1.7% in September (down from 2.2% in August)
• HCOB Manufacturing PMI fell to a nine-month low in September
• Germany expected to shrink for a second consecutive year
• Gold hit a record $2,688.82 per ounce on the day of the announcement
• Bank of England at 5%, widely forecast to cut in November
• US Federal Reserve had cut by half a point in September

Lagarde's assessment

ECB president Christine Lagarde said the fall in inflation had surprised the central bank and that a cut was needed to ensure a soft landing for the eurozone economy. "The latest data is all heading in the same direction, downwards, and points to more sluggish growth," she said. She refused to indicate whether further cuts would follow, saying the bank would remain data-dependent ahead of its December meeting.

Economist reaction

Holger Schmieding, chief economist at Berenberg Bank, said: "The trends in the real economy and inflation support the case for lower rates." Joe Nellis of Cranfield University noted that unlike the Bank of England, the ECB has a dual mandate requiring it to foster growth as well as control inflation. "With the German economy likely to shrink for its second consecutive year, we can expect the ECB to cut rates by another 0.25% in December," he said. The ECB's statement said the reduction was based on "an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission," adding that "the disinflationary process is well on track."