Monetary policy decisions

The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

The disinflation process is well on track. removed: Staff see headline inflation averaging 2.4% added: Inflation has continued to develop broadly in removed: 2024, 2.1% added: line with the staff projections and is set to return to the Governing Council’s 2% medium-term target in removed: 2025, 1.9% in 2026 and 2.1% in 2027 when the removed: expanded EU Emissions Trading System becomes operational. For inflation excluding energy and food, staff project an average added: course of removed: 2.9% in 2024, 2.3% in 2025 and 1.9% in both 2026 and 2027.

added: this year. Most measures of underlying inflation suggest that inflation will settle at around the removed: Governing Council’s 2% medium-term target on a sustained basis. Domestic inflation removed: has edged down but remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay. added: But wage growth is moderating as expected, and profits are partially buffering the impact on inflation.

removed: Financing conditions are easing, as the added: The Governing Council’s recent interest rate cuts added: are gradually removed: make added: making new borrowing less expensive for firms and households. removed: But they added: At the same time, financing conditions continue to be removed: tight added: tight, also because monetary policy remains restrictive and past interest rate hikes are still transmitting to the removed: outstanding stock of removed: credit.

removed: Staff now expect a slower economic recovery than in the September projections. Although growth picked up in the third quarter of this year, survey indicators suggest it has slowed in the current quarter. Staff see the added: credit, with some maturing loans being rolled over at higher rates. The economy removed: growing by 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027. The projected recovery rests mainly on added: is still facing headwinds but rising real incomes removed: – which should allow households to consume more – and removed: firms increasing investment. Over time, the gradually fading effects of restrictive monetary policy should support a pick-up in removed: domestic demand. added: demand over time.

The Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

Key ECB interest rates

The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. Accordingly, the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will be decreased to removed: 3.00%, added: 2.75%, 2.90% and 3.15% removed: and 3.40% respectively, with effect from removed: 18 December 2024. added: 5 February 2025.

Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)

The APP removed: portfolio is added: and PEPP portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.

removed: The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the PEPP, reducing the PEPP portfolio by €7.5 billion per month on average. The Governing Council will discontinue reinvestments under the PEPP at the end of 2024.

Refinancing operations

removed: Banks will repay added: On 18 December 2024 banks repaid the remaining amounts borrowed under the targeted longer-term refinancing removed: operations this month, which concludes added: operations, thus concluding this part of the balance sheet normalisation process.

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The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises sustainably at its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission. Moreover, the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:45 CET today.