ECB lowers interest rates again! Lagarde explains that she is Data dependent!
Subscribe here: https://bit.ly/eudebates It is a fact that at each projection exercise, we receive more data and in particular more updated projections of course, and typically, given that between now and the December meeting there will be more than six weeks, we will also receive more data. As I said, I did not open the door to anything. I repeated that at each and every meeting we will look at the data. Hence we will be data dependent, not data point dependent, nor anything else. Data dependent – all of it. We will determine what is the best rate, what is the best speed, how far and how deep we have to go in order to return inflation to its 2% medium-term target. This is what we will do in December, and I would not give any other commitment, nor make any other statement in that respect. As I said in the monetary policy statement that I read earlier on, we are not pre-committing. Again, I think that the decision that we’re making today is a perfect example of how we can be data dependent.
The European Central Bank has intervened to prevent a sharp slowdown in the eurozone economy with its first back-to-back interest rate cut since the euro crisis in 2011.
With Germany on the brink of a recession and inflation tumbling across the 20 member single currency bloc, the ECB followed a reduction in the cost of borrowing at its previous meeting in September with a further 0.25 percentage point cut in its key deposit rate to 3.25%.
Marking the third interest rate cut this year, the ECB’s president, Christine Lagarde, said the fall in inflation had surprised the central bank and meant a cut was needed to ensure a soft landing for the eurozone economy.
Figures out earlier on Thursday revealed annual prices growth in the eurozone had eased in September to 1.7%, down from 2.2% the previous month.
Lagarde said there were clear signs from most measures of business and consumer activity that the economy was weakening.
Growth in France is expected to wane after a bounce during the Olympics while Italy’s better than expected recovery from the inflation shock of the last two years has petered out. Only Spain has shown a degree of resilience while interest rates have remained high, increasing by 0.8% in the second quarter of the year.
Earlier this month, an measure of factory output in the eurozone – the HCOB Manufacturing PMI – fell to a nine-month low in September, adding to a downturn lasting more than two years.
Lagarde said: “The latest data is all heading in the same direction, downwards, and points to more sluggish growth.”
She refused to indicate whether there would be further rate cuts, saying the central bank would remain dependent on the data before making further cuts at its next meeting in December.
The ECB’s move puts it two ahead of the Bank of England, which is widely forecast to cut the cost of borrowing in the UK by 0.25 percentage points from the current level of 5% when its monetary policy committee meets next month.
In the US, the Federal Reserve has indicated it is also minded to trim rates in the coming months after instituting its first reduction last month – a half-point cut.
Gold reached a record high just before Thursday’s ECB announcement, hitting $2,688.82 (£2,065.26) an ounce for the first time, lifted by forecasts of interest rate cuts around the world and uncertainty ahead of next month’s US election.
Announcing its decision, the ECB said the reduction in interest rates was based on “an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission”.
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