European Central Bank Cuts Rates for Fourth Time in 2024 to Support Weak Economic Growth

ECB Cuts Key Rates to Boost Economic Activity
The European Central Bank (ECB) has implemented its fourth interest rate cut of 2024, reducing its deposit rate by 25 basis points to 3%. This move comes as part of the ECB’s strategy to support a struggling Eurozone economy, with lower interest rates designed to encourage borrowing, investment, and consumer spending. The deposit rate, which governs the cost at which banks can make overnight deposits at the ECB, is one of the central tools used by the bank to influence overall monetary conditions in the region.

In addition to lowering the deposit rate, the ECB has also reduced its two other key interest rates. The main refinancing rate, which is applied to loans that banks borrow from the ECB on a weekly basis, has been set at 3.15%. Meanwhile, the marginal lending facility rate, which applies to emergency overnight credit for banks, is now at 3.4%. These measures are aimed at stimulating economic activity in a region where growth has been sluggish.

Economic Growth Lagging Despite Progress on Inflation
The ECB’s decision to cut rates further reflects growing concerns over the Eurozone’s weak economic growth, despite inflation moving closer to the ECB’s 2% target. According to forecasts from the European Commission, the region’s economy is expected to grow just 0.8% in 2024 and 1.3% in 2025. While inflation has moderated, the ongoing low growth presents a significant challenge for policymakers. ECB President Christine Lagarde has made it clear that while inflation control is important, it is equally crucial to stimulate the Eurozone economy, which remains far below its potential.

With inflation trending towards its target, the ECB’s challenge has shifted from managing inflation to addressing the region’s anemic growth. The current economic environment has led to a series of rate cuts since June 2024, as the ECB seeks to balance its dual mandate of price stability and economic growth.

Outlook for 2025: Risks and Future Policy Adjustments
Looking ahead, the ECB faces several external and internal risks that could influence its future monetary policy decisions. These include political instability in some of the Eurozone’s largest economies and the uncertainty surrounding the outcomes of the upcoming US elections. The ECB will also need to assess how these factors could impact economic conditions and inflation trends as it plans for 2025.

Investors are closely watching the central bank’s projections for 2025, particularly with regard to whether further rate cuts will be necessary. The recent rate cut is expected to be the last of 2024, but markets anticipate the ECB may take additional measures in 2025 if economic growth continues to lag. President Lagarde’s upcoming press conference will be key in providing more clarity on the ECB’s monetary policy path in the coming year.