There ECB cuts interest rates. The Governing Council of the European Central Bank has decided to reduce the three rates by 25 basis points. According to Frankfurt forecasts, net of the energy and food component, inflation will reach an average of 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026. It is expected that the economic growth increases to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.
Inflation
Frankfurt reports that “despite progress in recent quarters, strong domestic price pressures persist as wage growth is high; inflation will likely remain above target until much of next year”. Eurosystem experts point out that forecasts for overall and underlying inflation have been revised upwards for 2024 and 2025 compared to estimates for the month of March. Furthermore, based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the intensity of monetary policy transmission, we read in the note at the end of the meeting, “it is now appropriate to moderate the degree of restriction of monetary policy after nine months of unchanged interest rates“. The rate on main refinancing operations at 4.25%, that on marginal refinancing operations at 4.5% and that on deposits at 3.75%, with effect from 12 June 2024.
Savings on mortgages and loans
With this first easing of monetary policy, there will be “more significant advantages for families, both for buying a house and for buying cars or household appliances“. The Autonomous Federation of Italian Bankers has recalled that for some months the banks, “in anticipation of a return to a less restrictive monetary policy by the Eurotower, they anticipated the expected reduction in rates and the decline could continue in the coming months“. I mortgage rates have already decreased to an average of 3.69%, compared to average levels above 5% in 2023. Fabi explains that “they could drop further to 3.45%: a reduction which will lead, in the case of a 25-year real estate loan of 200 thousand euros, to an overall saving of almost 62,000 euros (-17%).
Interest rates and consumer credit On the consumer credit front in recent months “consumer credit rates have fallen to an average of 8.93%, after peaks above 14%, and could fall further to 8 .5%“.
