The Governing Council decided today to reduce the ECB’s three key interest rates by 25 basis points. Based on 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 of unchanged interest rates. This was announced by the ECB.
Mortgages, how much will the installment fall with the rate cut? Fixed and variable, how it changes: here are the simulations
The prospects
For the next decisions on rates, the ECB will base itself on its assessment of the inflation outlook, given the new economic and financial data, the dynamics of underlying inflation and the intensity of monetary policy transmission, without binding itself to a particular path. of rates”. The Board of Directors announced this at the end of the meeting.
Inflation, 2024 estimates at 2.5%
Despite the sharp drop in inflation which pushed the Governing Council to launch the first rate cut since September 2019, the ECB complains that «despite the progress of the last few quarters, strong internal pressures on prices persist as wage growth is high; Inflation will likely remain above target until much of next year.” These tensions – it is underlined in the Council’s final statement – are reflected in the latest projections formulated by Eurosystem experts for overall and underlying inflation which «have been revised upwards for 2024 and 2025 compared to the March projections. Experts now indicate that overall inflation would average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. Inflation net of the energy and food component would on average at 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026″. However, GDP estimates are improving, in fact the ECB expects economic growth to increase to 0.9% in 2024 (+0.3 points on previous forecasts), to 1.4% in 2025 (-0.1 points) and 1.6% in 2026 (stable).
Eurozone growth improves
The ECB has improved its growth estimate for the Eurozone economy in 2024, bringing it to 0.9% from +0.6% indicated in the ‘staff projections’ last March. For 2025 the estimated growth is now 1.4% from 1.5% indicated in April, for 2026 1.6% is confirmed
BTp: 10-year yield rises to 3.87% after ECB, spread rises to 131
Increase in yields on Eurozone government bonds following the announcement of the interest rate cut by the ECB and estimates of inflation and growth in the area. The yield of the 10-year Benchmark 10-year BTP rose to 3.87%, from 3.83% prior to the announcement, and at the same time that of the Bund of the same maturity moved from 2.53% to 2.56%, bringing the differential at 131 points (130 before the announcement). The same movement of a couple of basis points affected the 2 and 5 year maturities of Italian bonds. Frankfurt’s decision was widely expected as was the caution expressed by the institute regarding possible future moves while forecasts on the trend of inflation were raised.
Lagarde, inflation above 2% also in 2025
In the euro area, «despite the progress made in recent quarters, strong internal pressures on prices persist as wage growth is high» and therefore «inflation will likely remain above target until much of next year». The president of the ECB, Christine Lagarde, said this in different words compared to those in the press conference in April, when she indicated that inflation would see “fluctuations around current levels, before falling to our target (of 2%, ed. ) in mid-2025”.
Giorgetti’s reaction
«Finally the ECB has cut rates. An expected, timely decision, consistent with the current situation and, looking at the excellent data on the reduction of inflation in Italy, well below the euro area average…even a duty. It was time. We hope that this is only the first step in this direction.” This was declared by the Minister of Economy and Finance Giancarlo Giorgetti.
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