European Central Bank Lowers Key Interest Rates by 25 Basis Points
Click to start listening
Frankfurt, Dec 12 (NationPress) The European Central Bank (ECB) has made the decision to lower its key interest rates by 25 basis points during its recent rate-setting meeting held on Thursday.
This change results in the new interest rates for the deposit facility, the main refinancing operation, and the marginal lending facility being set at 3 percent, 3.15 percent, and 3.4 percent respectively, as stated by the bank.
The rationale behind this interest rate reduction stems from the ECB's updated evaluation of the inflation outlook, the trends in underlying inflation, and the effectiveness of monetary policy transmission, according to their statement. This is the fourth rate cut made by the ECB this year, following a series of reductions from historic highs.
The ECB anticipates that inflation will meet its 2 percent target in the medium term on a consistent basis, referencing measures of underlying inflation, as reported by the Xinhua news agency.
Notably, the ECB has shifted away from its earlier stance of maintaining restrictive policy rates as needed, while emphasizing its commitment to a data-driven approach in guiding future monetary policy decisions.
The Governing Council has expressed its determination to ensure that inflation stabilizes sustainably at its 2 percent medium-term target, as mentioned in their statement.
Earlier this year, for the first time since 2004, the ECB reported an annual loss for 2023 following nearly two decades of significant profits.
The central bank disclosed a loss of nearly 1.3 billion euros (approximately 1.4 billion US dollars) last year, attributed to the release of 6.6 billion euros from provisions related to financial risks.
The ECB stated that this loss reflects the necessary monetary policy actions taken by the Eurosystem in response to elevated inflation levels, which have included numerous consecutive interest rate hikes since July 2022.
The increase in key interest rates has raised the interest expenses associated with the ECB's variable-rate liabilities; however, income from assets did not increase at the same rate, as many were fixed-rate with long maturities, ultimately leading to a loss, according to the central bank.
Moreover, the ECB anticipates further losses in the coming years before achieving sustainable profits once again.
The central bank has committed to diligently fulfill its primary mandate of maintaining price stability, regardless of any incurred losses.
