The European Central Bank (ECB) has announced a 25 basis point cut to its key interest rates in December 2024, marking the fourth reduction this year as anticipated.
ECB cuts rates by another 25 bps as expected
This decision reflects a more favorable inflation outlook and improvements in the transmission of monetary policy. Inflation is expected to gradually decline, with projections of 2.4% in 2024, 2.1% in 2025, and 1.9% in 2026. Core inflation, which excludes energy and food, is also expected to decrease, with a target of 2% in the medium term. Despite easing financing conditions from the rate cuts, borrowing costs remain relatively high due to the impact of previous hikes on existing loans.
Economic recovery is expected to be slower
Economic recovery is expected to be slower than earlier forecasts, with growth projections of 0.7% in 2024, 1.1% in 2025, and 1.4% in 2026. The ECB remains committed to ensuring inflation returns to its 2% target and will adjust its policies based on incoming data, without committing to a fixed rate path.
