ECB cuts to 3.00%, projects inflation steady around target through 2027

ECB cut its deposit rate by 25bps to 3.00%, aligning with market expectations. The overall decisions and economic projections reflect confidence in the ongoing disinflation process. Yet, he Governing Council reiterated its “data-dependent and meeting-by-meeting approach,” refraining from pre-committing to any specific rate path.

In its statement, the ECB highlighted that the “disinflation process is well on track.” The bank’s updated projections show headline inflation averaging 2.4% in 2024, moderating further to 2.1% in 2025 and 1.9% in 2026.

Inflation excluding energy and food is expected to average 2.9% in 2024, easing to 2.3% in 2025 and stabilizing at 1.9% by 2026 and 2027.

ECB added that inflation is projected to settle around its 2% target “on a sustained basis.”

However, growth expectations were revised downward, reflecting continued economic challenges. ECB now forecasts the Eurozone economy to expand by just 0.7% in 2024, improving modestly to 1.1% in 2025 and 1.4% in 2026.

Growth is expected to rest primarily on rising real incomes, which should bolster household consumption, alongside gradual increases in business investment. Additionally, ECB noted that the fading effects of restrictive monetary policy should support a recovery in domestic demand over time.

Full ECB statement here.