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Madrid – The Governing Council of the European Central Bank (ECB) has followed the planned script and decided this Thursday to lower interest rates by 25 basis points, so that the reference rate for its refinancing operations will remain at 4.25%, the deposit rate will fall to 3.75% and the lending facility rate will fall to 4.50%.
The ‘guardian of the euro’ had raised rates by 450 basis points during the rate hike cycle that began in July 2022 and did not stop until its October 2023 meeting when, after ten consecutive hikes, the price of money was at its highest level in more than 20 years.
The decision taken by the issuing bank this Thursday represents the first cut in the price of money since 2019, but the president of the institution, Christine Lagarde, has warned that the Governing Council will continue to follow a data-dependent approach and does not pre-commit “to any particular rate path”.
“On the basis of an updated assessment of the inflation outlook, underlying inflation dynamics and the intensity of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy tightening after nine months during which interest rates have remained unchanged,” the ECB said in a statement.
The ECB has stated that its monetary policy has so far maintained restrictive financing conditions that have dampened demand and “firmly” anchored inflation expectations, which has contributed to a “significant” decrease in inflation.
However, domestic inflationary pressures will remain “intense”, so it will keep rates “at sufficiently restrictive levels for as long as necessary”, while continuing to follow a data-dependent approach meeting by meeting.
Spanish Minister of Economy, Trade and Business, Carlos Cuerpo, has positively assessed the rate cut, which he described as a “turning point” and a “good sign”.
Cuerpo emphasized that this decision reflects an optimistic ECB outlook on the evolution of inflation, forecast around 3% for 2024 and 2% for 2025, which will ease financial conditions for households and businesses.
The minister explained that, with the expected development of the Euribor, the main reference index for mortgages, families updating their loans in the coming months could save around 50 basis points. This would translate into annual savings of more than 400 euros per household.
In Spain, following the ECB’s decision, the Ibex 35, the main benchmark stock index of the Spanish stock market, rose by 0.80% in Thursday’s session, allowing it to surpass the 11,400 mark and reach its highest level since mid-July 2015.