On Thursday, the European Central Bank lowered the deposit facility rate by 25 basis points to 3.00% in its last policy meeting of 2024, aligning with market expectations; this marks the fourth rate cut of the year, totaling 100 basis points, bringing the benchmark rate to its lowest level since March 2023. The central bank also plans to halt the reinvestment of its Pandemic Emergency Purchase Programme (PEPP) by the end of 2024.
After the European Central Bank announced its interest rate decision, the euro rose 15 points against the dollar briefly, before falling again.
The European Central Bank removed the phrase regarding maintaining interest rates as 'sufficiently restrictive' from its statement, suggesting the possibility of further rate cuts, and warned that economic growth would be weaker than its previous forecasts. The central bank expects GDP growth rates of 0.7% for 2024, 1.1% for 2025, 1.4% for 2026, and 1.3% for 2027. (September expectations were 0.8%, 1.3%, and 1.5% respectively).
Meanwhile, the European Central Bank believes that progress in combating inflation is proceeding smoothly. The central bank projects an inflation rate of 2.4% for 2024, 2.1% for 2025, and 1.9% for 2026. (September expectations were 2.5%, 2.2%, and 1.9% respectively); the core inflation rate is expected to be 2.9% in 2024, 2.3% in 2025, and 1.9% in 2026. (September expectations were 2.8%, 2.3%, and 2.0% respectively);
Regarding policy guidance, the European Central Bank did not make any prior commitments to a specific interest rate path and stated that it will follow a data-dependent and sequential meeting approach to determine the appropriate monetary policy stance.
Traders' expectations for the European Central Bank's interest rates remained stable after the rate decision was announced, anticipating a rate cut of 127 basis points in 2025.
Forex strategist Vassilis commented on the European Central Bank's decision saying that the euro fell to a new low, as the ECB abandoned the 'restrictive policy' part of its statement, but this does not mean that the policy language is entirely dovish. The bond market in the Eurozone is stable.
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Article reposted from: Jin Shi Data