European Central Bank cuts deposit rate by 0.25%p...to 2.50% annually

JOON HYOUNG LEE

Summary

The European Central Bank has cut its policy rate consecutively, lowering the deposit rate from 2.75% to 2.5% annually.
The market had expected the European Central Bank to cut its deposit rate to around 2% this year, but due to recent increases in market interest rates and euro value, the forecast has been adjusted upward to 2.05%.
The European Central Bank reported that it has downgraded the eurozone's economic growth forecast to 0.9% this year and 1.2% next year.

The European Central Bank (ECB) has cut its policy rate for the 5th consecutive time.

On the 6th (local time), the European Central Bank held a monetary policy council meeting in Frankfurt, Germany, and lowered the deposit rate from the existing 2.75% to 2.5% annually, a reduction of 0.25 percentage points. The base rate was also lowered by 0.25 percentage points from 2.9% to 2.65% annually. The marginal lending rate was also reduced by 0.25 percentage points from 3.15% to 2.9% annually.

The European Central Bank determines its monetary policy centered on the deposit rate among policy rates. The market initially expected the European Central Bank to lower the deposit rate to around 2.0% by the end of the year. This was due to the poor economic conditions in major European Union (EU) countries such as Germany and France.

However, the situation has changed as market interest rates and the value of the euro have surged due to the recent trend of increased fiscal spending in major countries. According to Reuters, the market forecast for the European Central Bank's deposit rate at the end of this year was adjusted upward from 1.92% on the 4th to 2.05% today.

Regarding this, Goldman Sachs diagnosed that "fiscal-related news is relieving the pressure to lower the deposit rate below the neutral rate level." The neutral rate refers to the interest rate level that neither stimulates nor slows economic growth. The neutral rate for the eurozone estimated by the European Central Bank is 1.75-2.25%.

Meanwhile, the European Central Bank lowered its economic growth forecast for the 20 eurozone countries using the euro this year by 0.2 percentage points from the previous 1.1% to 0.9%. The economic growth forecast for next year was also lowered by 0.2 percentage points from 1.4% to 1.2%. The European Central Bank explained, "This reflects the decline in exports stemming from uncertainties in a wide range of policies, including trade policy, and the continued slowdown in investment for this year and next year."