FX.co ★ ECB Cuts Rates as Expected

The European Central Bank (ECB) has reduced its trio of key interest rates by 25 basis points. Consequently, the main refinancing rate now stands at 2.40%, the deposit rate at 2.25%, and the marginal lending facility at 2.65%, in line with expectations. This action signals increased confidence that inflation is on a sustainable path to reach the 2% target. Both headline and core inflation are gradually decreasing, with a notable cooling in services inflation as well. Wage growth is slowing, and companies are managing some of the cost pressures. Despite these developments, there remain significant risks to the economic outlook of the Euro Area, particularly due to escalating global trade tensions, which are affecting business confidence and leading to tighter financial conditions. The ECB has recognized that growth forecasts have deteriorated and stressed its commitment to a data-driven approach moving forward. It has not committed to additional cuts, emphasizing that forthcoming decisions will hinge on economic data, inflation trends, and the effectiveness of monetary policy transmission.