European Central Bank (ECB) policymakers have unanimously decided to reduce the main deposit rate by 0.25%, in line with expectations following a previous cut in June.
The deposit facility rate has been lowered from 3.75% to 3.50%, and the main refinancing rate has decreased from 4.25% to 3.65%. This decision reflects weaker growth prospects attributed to slower private consumption and investment activity.
Updated economic projections show a slight downgrade in growth forecasts, with estimates now at 0.8% for this year and 1.3% for next year, down from June’s forecasts of 0.9% and 1.4%, respectively.
Headline inflation estimates remain unchanged at 2.5% for 2024, 2.2% for 2025, and 1.9% for 2026. However, core inflation projections have been revised higher due to increased price pressures in the services sector.
In the press conference, ECB President Lagarde emphasized that the bank is not committing to a fixed path of interest rate changes. She noted that the ECB is considering a broad range of indicators and that moderating labor cost pressures are balancing out the effects of services inflation.
Market Reactions
The euro, which had been trading within a narrow range earlier in the day, experienced a slight increase in volatility about an hour before the ECB announcement.
EUR/JPY and EUR/CHF began to edge lower ahead of the announcement, while EUR/CAD and EUR/GBP saw modest gains. The ECB's statement, which largely met expectations, did not push the euro in a clear direction. It briefly rose against the yen but continued to decline against the franc and retraced some gains against sterling.
However, EUR/CAD and EUR/USD continued to climb, and Lagarde’s press conference helped sustain these gains, with EUR/AUD and EUR/NZD also joining the upward trend. EUR/JPY, which had initially dipped during the press conference, eventually moved higher along with EUR/CHF following Lagarde’s comments.
