European Central Bank cuts deposit rate by 0.25%p to 2.25% annually

JOON HYOUNG LEE

Summary

The European Central Bank announced that it has lowered the policy rate by 0.25 percentage points, adjusting the deposit rate to 2.25% annually.
This rate cut has reached the upper end of the neutral rate range estimated by the ECB, indicating consideration of its impact on economic growth.
The market expects the ECB to further cut the deposit rate to 1.68% annually within the year.

The European Central Bank (ECB) has lowered its policy rate by 0.25 percentage points.

On the 17th (local time), the ECB held a monetary policy council meeting in Frankfurt, Germany, and decided to cut the deposit rate by 0.25 percentage points from the previous 2.50% annually to 2.25% annually. The benchmark rate was also lowered by 0.25 percentage points from the previous 2.65% annually to 2.40% annually. The marginal lending rate was also cut by 0.25 percentage points from the previous 2.90% annually to 2.65% annually.

The ECB determines its monetary policy focusing on the deposit rate among policy rates. Since shifting its monetary policy direction in June last year, the ECB has consecutively lowered its policy rate six times from September last year to today.

With this rate cut decision, the gap between the ECB's deposit rate, which is the standard for its monetary policy, and the U.S. Federal Reserve (Fed) benchmark rate (4.25-4.50%) has widened to 2.00-2.25 percentage points. The gap with the Bank of Korea's benchmark rate (2.75%), which was frozen today, is 0.50 percentage points.

Additionally, with this cut, the deposit rate has reached the upper end of the neutral rate range estimated by the ECB, which is 1.75-2.25%. The neutral rate refers to the level of interest rates that neither stimulates nor slows down economic growth. The market expects the ECB to cut the deposit rate further to 1.68% within the year.