ECB Lowers Deposit Facility Rate by 25 Basis Points

ECB has reduced the deposit facility rate by 25 basis points.

Main interest rate: Now 3.40%, down from 3.65%, as expected.

Deposit facility rate: Now 3.25%, down from 3.50%, as expected.

Marginal lending rate: Now 3.65%, down from 3.90%, as expected.

The European Central Bank (ECB) says the disinflation process is progressing well. Today, they decided to lower three interest rates by 25 basis points. They noted that inflation expectations have been affected by recent surprising declines in economic activity indicators.

The ECB plans to keep interest rates “restrictive” for as long as needed. They will take a meeting-by-meeting approach, relying on data to guide their decisions and will not commit to a specific rate path.

Inflation is expected to rise again before falling to the target. While financing conditions remain tight, domestic inflation is still high because wages are increasing rapidly.

The ECB will maintain restrictive policy rates until their goals are met, making decisions based on inflation outlook, incoming economic data, and the effectiveness of monetary policy.

Additionally, the ECB’s Pandemic Emergency Purchase Programme (PEPP) portfolio is decreasing at a steady rate because they are no longer reinvesting principal payments from maturing securities. The EUROSYSTEM will reduce the PEPP portfolio by an average of €7.5 billion per month.

The ECB will remain flexible in reinvesting due payments in the PEPP portfolio to support the monetary policy transmission process. Traders are maintaining their bets on an ECB rate cut, anticipating a 25 basis point reduction in December.

Europe’s STOXX 600 index has reduced its gains following the ECB’s rate decision, currently up 0.64%.

The euro has strengthened against the dollar after the ECB’s announcement, now at $1.086475, up 0.1%.

Eurozone government bond yields are mostly stable after the ECB’s decision, with Germany’s 10-year yield increasing by 2 basis points to 2.20%.