ECB lowers rates to 3.5%, Lagarde: "Unanimous decision"

The ECB has reduced the interest rate on the deposit facility by 25 basis points. The spread between the interest rate on the main refinancing operations and that on the deposit facility will instead be set at 15 basis points. While the spread between the rate on the marginal lending facility and the main operations will remain unchanged at 25 basis points. Therefore, the interest rate on the deposit facility will be reduced to 3.50%. The interest rates on the main refinancing operations and the marginal lending facility will be reduced to 3.65% and 3.90% respectively. The changes will enter into force on 18 September 2024.

It’s about the second cut made by the ECB after the one last Junewhich has started the reversal of the cycle of increases that began in 2022 to curb the inflationary run-up triggered by Russia’s invasion of Ukraine and the subsequent energy crisis. Now next week we await the outcome of the meeting della Fedwhich could proceed with an initial downward adjustment.

In announcing the cut, the ECB president Christine Lagarde However, she warned that “we are not committed to a pre-established path of rate cuts”. Lagarde reiterated that the ECB’s approach is “data dependent” and will decide on any further cuts “meeting by meeting”. Lagarde recalled that the risks to economic growth “remain tilted to the downside and growth forecasts remain weak”. Because, she stressed, “Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are the main sources of geopolitical risk”.

The diagnosis of the European economy contained in the report presented at the beginning of the week by his predecessor Mario Draghiaccording to the ECB president is “tough but fair” and she invited governments to welcome the proposals contained in the document. “It is a formidable report – she added – it also indicates structural reforms that could be extremely useful to make Europe stronger”.

Among the questions on rates there is also room for the Unicredit possible takeover of Commerzbank. “It will be very interesting to see this process unfold,” Lagarde commented, specifying however that the assessments are up to the ECB’s Banking Supervision branch and not the one responsible for monetary policy. However, she added, the two banks “know perfectly well what their regulatory requirements are” to proceed.

Analysts’ reactions

Analysts are divided in their assessments of the ECB’s decision. “Today’s cut will bring significant benefits to bank rates. The ECB has taken an important decision, demonstrating courage because for the second consecutive time it has anticipated the moves of the US Federal Reserve, whose monetary policy decisions continue to be uncertain,” analyzed Fabi Secretary General Lando Maria Sileoni.

“With wage growth far outpacing productivity growth and services inflation picking up, the Governing Council has no reason to accelerate the pace of rate cuts or engage in further rate cuts at this stage,” added Sylvain Broyer, chief economist EMEA at S&P Global Ratings.

“Too little too late. It took 6 ECB meetings in 9 months to cut rates by half a point. Two timid little steps in June and September. We will need to continue with more courageous cuts to ease the costs of access to credit for businesses”, said Maurizio Gardini, president of Confcooperative commenting on the 0.25 cut decided by the ECB.