Editor's Note: This article has been updated to include comments from ECB President Christine Lagarde.
The European Central Bank on Thursday lowered the deposit rate by 25 basis points. The widely-anticipated move marks the ECB’s fourth interest rate cut of the year.
The Details: The Governing Council lowered the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility to 3.00%, 3.15% and 3.40% respectively.
“Financing conditions are easing, as the Governing Council's recent interest rate cuts gradually make new borrowing less expensive for firms and households,” the ECB said in a press release.
“But they continue to be tight because monetary policy remains restrictive and past interest rate hikes are still transmitting to the outstanding stock of credit.”
ECB President Christine Lagarde held a press conference following the rate cut decision and spoke about slowing economic activity in the current quarter.
"Surveys indicate that manufacturing is still contracting and growth in services is slowing. Firms are holding back their investment spending in the face of weak demand and a highly uncertain outlook. Exports are also weak with some European industries finding it challenging to remain competitive," Lagarde said.
Lagarde said that the labor market remains resilient, but the demand for labor continues to weaken.
"The economy should strengthen over time, though more slowly than previously expected," Lagarde added.
Read More: Inflation Rises As Expected In November, Sustains Hopes For December Interest Rate Cut
The ECB said its staff now expect a slower economic recovery than in its September projections, with survey indicators suggesting growth has slowed in the current quarter.
ECB Staff now see the Eurozone economy growing by 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027.
The Governing Council said that it will follow a "data-dependent and meeting-by-meeting approach" as it remains determined to ensure inflation stabilizes at its 2% target. It also stressed that it is not committing to any particular rate path going forward.
Markets React: European markets are steady on Thursday as traders assess the ECB’s interest rate cut. The pan-European Stoxx 600 index was down 0.06% at around 1:30 p.m. London time. Investors will be watching the Xtrackers MSCI Europe Hedged Equity ETF DBEU and the SPDR Portfolio Europe ETF SPEU to gauge the U.S. market reaction to the cuts.
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