In a unanimous decision and as markets expected, ECB members cut key interest rates by 25 basis points as of October 23:
- the Deposit rate It is now down to 3.25%
- the Prime refinancing rate I will retreat to 3.40%
- the Marginal lending facility rate It will ease to 3.65%
Link to the ECB’s monetary policy statement for October
The European Central Bank noted in its statement:An updated assessment of inflation expectations, core inflation dynamics and the strength of monetary policy transmission“As a reason for the recent cuts.
Specifically, members noted that “recent negative surprises” in economic indicators affected their inflation expectations. However, they generally think so Deflationary process ‘on track’ Even as they expect inflation to rise in the coming months before falling to the target next year.
The statement also confirmed The board does not commit in advance to a particular price pathShe said she would adoptData driven and Approach each meeting individually“.
President Lagarde recognized this in her press conference Economic growth risks ‘tend to downside’ Enough to influence the bank’s inflation expectations. It also reiterated the Bank’s preference for a meeting-by-meeting approach.
It’s still her Leave Room for further modificationssaying “If the data continues to point in the same direction, we will act accordingly, but we will remain flexible and open.“
Link to the ECB’s October monetary policy press conference
Market reactions
Euro against major currencies: 5 minutes
Overlay of the Euro against major currencies Chart by TradingView
The euro, which ranged in value against the US dollar, Japanese yen and Canadian dollar but fell against its other counterparts in the hours leading up to the release, was barely reacting to the expected rate cut from the European Central Bank.
However, the euro saw sharp declines across the board when Lagarde admitted in her press conference that economic risks were “tilted to the downside” and left room for further easing.
The euro hit new daily lows before catalysts and themes during the US session allowed the common currency to retreat against safe havens and hold against “risk” currencies such as the Australian dollar, New Zealand dollar, Canadian dollar and British pound.