As expected, the key interest rate in the eurozone is cut by 25 basis points. The continuation “depends on the economic data”, says Christine Lagarde.

This time the predictions were confirmed. The key rate, the so-called “deposit facility rate”, is being cut by 25 basis points to 3.5%. This is the interest rate that gives the direction of monetary policy, because it determines the interest that banks receive for one-day deposits at the European Central Bank (ECB).

“The decision was unanimous” the head of the ECB, Christine Lagarde, said on Thursday afternoon, to add that “the forecast for a reduction in inflation to 2% in due course is confirmed”.

Due to “technical adjustments” the other two interest rates set by the ECB, namely the main refinancing operations rate and the marginal financing facility rate, are reduced by 0.6% to 3.65% and 3.9% respectively. This is the second interest rate cut in 2024 after the one in June, while in July the custodians of the euro had taken a “break” avoiding further reductions.

Are new reductions coming?

The question is, of course, whether there will be continuity in 2024. A further reduction in interest rates would certainly make it easier for borrowers, while on the contrary it would cause difficulties for depositors and savers. “We decide from meeting to meeting, we do not commit ourselves either in terms of time, nor in terms of the scope of the intervention” stresses Christine Lagarde. “It all depends on the financials.”

Clemens Fist, director of the IfO Economic Institute in Munich, tells Reuters that “further reduction of interest rates is justified only if the downward course of inflation continues” and notes that in the tertiary sector inflation is maintained at levels above 4%. But Heiner Herkenhof, director of the Association of German Banks (BdB) also warns that “The ECB must maintain its ability to handle sensitively, which includes the ability to defy excessive expectations of rapid and successive interest rate cuts.”

For her part, Zilke Tober, an analyst at the Hans Beckler Foundation, which is close to German unions, estimates that a larger rate cut from the ECB would be needed at Thursday’s meeting. “A cut of 50 basis points would send the appropriate message,” he argues. “And this is because, while inflation seems to be under control, at the same time the risks to economic growth are increasing.”

Hopes for buying a home?

The German Chamber of Commerce and Industry (DIHK) speaks of a “good decision” by the ECB. The assessment by the association of real estate companies (IZA) is also positive, which notes that “the high cost of building materials and ever-increasing interest rates had almost paralyzed investors.”

It should be noted that on Thursday afternoon the price of gold rose to record levels. Analysts told Reuters that this development was due to expectations of a rate cut in the US at the meeting of the US Central Bank (Fed) next week.

Reuters, AFP, N-TV