ECB Cuts Deposit Rate to 3.5% and Warns Eurozone Growth Will Be Weaker Than Hoped
The European Central Bank cut its deposit rate from 3.75% to 3.5% on 12 September 2024, the second reduction of the year, as eurozone inflation fell to 2.2% in August. The ECB also lowered its GDP growth forecasts to 0.8% for 2024, 1.3% for 2025 and 1.5% for 2026, with president Christine Lagarde saying the bank is 'not pre-committing to a particular rate path'.
The European Central Bank lowered its deposit rate by a quarter of a percentage point, from 3.75% to 3.5%, on 12 September 2024 — the second cut of the year — as it warned that economic growth in the eurozone would be weaker than previously hoped, The Guardian reported. The move followed a fall in eurozone inflation to 2.2% in August, down from 2.6% in July and approaching the ECB's 2% target.
Key decisions
- Deposit rate cut from 3.75% to 3.5% — second reduction in 2024 after June's cut from 4%
- 2024 GDP growth forecast lowered from 0.9% to 0.8%
- 2025 growth forecast trimmed from 1.4% to 1.3%
- 2026 growth forecast cut from 1.6% to 1.5%
- Eurozone inflation: 2.2% in August (down from 2.6% in July)
- ECB expects inflation to rise later in 2024 as "wages are still rising at an elevated pace", then fall in 2025–2026
Lagarde's guidance
ECB president Christine Lagarde told reporters in Frankfurt: "We are not pre-committing to a particular rate path. We are going to decide meeting by meeting. I'm not giving you any commitment of any kind as far as that particular date is concerned and our path is not predetermined at all." She confirmed that the slowdown in Germany's economy — currently on the brink of recession — had been included in the latest forecasts.
Market expectations
Kathleen Brooks, research director at XTB, noted that financial markets expected further cuts: "The interest rate futures market is still pricing in 60 basis points of rate cuts for the rest of this year, with rate cuts expected in October and in December." Investors were also expecting the US Federal Reserve to begin easing with a quarter-point cut the following week, while the Bank of England was predicted to delay its second cut until November. The ECB's statement said it eased borrowing costs because "inflation is gradually coming down and has been developing as we expected." The governing council will next meet in October to assess whether further easing is warranted.
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