ECB Lowered Main Deposit Rate by 0.25% as Expected, Growth Forecasts Downgraded

By Investor Empires On Sep 13, 2024

European Central Bank policymakers unanimously decided to cut their key deposit rate by 0.25% as expected, following a previous cut in June.

The central bank cut the deposit rate from 3.75% to 3.50% and the main refinancing rate from 4.25% to 3.65%, citing weak growth prospects due to slowing private consumption and investment activity.

Link to the ECB Monetary Policy Statement for September

The updated economic forecasts included slight cuts to growth estimates to just 0.8% this year and 1.3% next year, compared with forecasts of 0.9% and 1.4% in June.

Meanwhile, headline inflation estimates remained unchanged at 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. Core inflation forecasts were also revised higher to include stronger price pressures in the services sector.

During the press conference, ECB President Christine Lagarde stressed that they refrain from committing in advance to a specific path for interest rate changes. She also explained that they are looking at a wide range of indicators, adding that easing labor cost pressures are counteracting the impact of inflation in services.

Market Reactions

Euro vs Major Currencies: 5 minutes

Euro overlay against major currencies Chart by TradingView

The euro, which had been moving cautiously within defined ranges earlier in the day, saw a slight increase in volatility about an hour before the actual ECB event.

EUR/JPY and EUR/CHF started to fall ahead of the announcement, while EUR/CAD and EUR/GBP rose slightly. The ECB statement, which was largely in line with expectations, did not appear to have moved the single currency in a clear direction, as it rose slightly against the yen while continuing to slide against the franc and making some gains against the pound.

However, EUR/CAD and EUR/USD continued to rally, with Lagarde’s press conference appearing to sustain the gains in these pairs, eventually joined by EUR/AUD and EUR/NZD. EUR/JPY, which initially fell during the press conference, also rose along with EUR/CHF after Lagarde’s comments.