Financial markets/economy

ECB cuts rates by 25 basis points: the consequences for savers

Posted by MoneyController on 06.06.2024

Important news comes from the European Central Bank today.

ECB cuts interest rates

As stated in today's press release, 6 June 2024, "The Governing Council decided to lower the three key ECB interest rates by 25 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25%, 4.50% and 3.75% respectively, with effect from 12 June 2024".

A significant reduction in the inflation rate

The ECB therefore cut interest rates by 0.25 %, as most analysts had expected. This marks the beginning of the downward phase of monetary policy in the euro area as well, after nine months in which rates had not changed. In the press release, reference was made to the inflation performance, which had fallen by 2.5% since September. Nevertheless, the monetary policy target of 2% inflation still remains to be reached, a target that may be harder to achieve than one might think.

Eurozone inflation and growth forecasts

Indeed, Eurostat's projections indicate that inflation is expected to stand at 2.5 % in 2024, falling to 2.2 % in 2025 and below 2 % (1.9 %) no earlier than 2026. If we then look at core inflation, i.e. discounted by energy goods and foodstuffs, the rate is expected to be 2.8% in 2024, 2.2% in 2025, reaching 2.0% in 2026. Good news, however, as the press release states, in terms of economic growth: "Economic growth is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026".

What consequences for savers? The case of mortgages and loans

One of the effects of this decision will be the reduction of variable-rate mortgage instalments, since the ECB rates are linked to the Euribor. As Gino Pagliuca points out in the ‘Corriere della Sera’, the rate discount had, however, already been partly anticipated in the past days and weeks. In addition to subscribers of a variable-rate mortgage (we read again in Pagliuca's article, which reports some considerations Federazione autonoma bancari italiani), the reduced interest rates will also benefit subscribers of a loan (for the purchase of a car or an appliance, for example).

Read also:

Inflation back on Europe's radar?

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