The European Central Bank (ECB) decided today to reduce the deposit facility rate by 25 basis points to 3.00%. The main refinancing rate was adjusted to 3.15%, and the marginal lending facility rate to 3.40%. With this latest rate cut, the ECB continues its course toward monetary normalization as inflation broadly approaches its target level.
Florian Heider, Scientific Director at the Leibniz Institute for Financial Research SAFE, comments:
“Today's decision shows that the ECB is using this small rate decrease to address prevailing uncertainties, mostly of geopolitical nature, and to ensure financial stability. The slight increase in inflation and the decision to lower rates has already been priced in by the markets, which justifies this decision.
Markets expect the ECB to continue cutting rates towards a lower, so-called neutral level, which is difficult to estimate precisely. Whether this can be achieved will depend on whether inflation continues to decline, which is not certain, and on the economic outlook for the euro area. Monetary normalization now requires a more forward-looking approach in order to signal this neutral level to the economy.”
Scientific Contact
Prof. Dr. Florian Heider
Scientific Director, Co-Director Department "Financial Intermediation"
