MADRID Dec. 12 () –
The Governing Council of the European Central Bank (ECB) decided this Thursday to comply with the script and lower interest rates by 25 basis points, so that the deposit rate (DFR) will remain at 3%, the reference rate for its main refinancing operations (MRO) at 3.15% and that of the loan facility (MLF) at 3.40%.
As the analysts consulted by Europa Press took for granted, the ECB has continued with its cycle of monetary flexibility after the decrease in October, when it decided to cut rates in the same proportion.
“In particular, the decision to lower the interest rate applicable to the deposit facility […] is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the intensity of the transmission of monetary policy,” the issuing institute has argued.
Financing conditions are “easing” as recent rate cuts are “gradually” reducing the cost of new credit for businesses and households. However, they remain “strict”, because the monetary policy is still restrictive and the previous increases in the reference rate continue to be transmitted to the outstanding balance of the credit granted.
The ECB has assured, even so, that the disinflation process continues to advance. In this way, it predicts that general inflation will average 2.4% in 2024, 2.1% in 2025, 1.9% in 2026 and 2.1% in 2027, when the expanded regime of the European Union (EU) emissions trading system begins to apply.
Afterwards, underlying inflation, which excludes energy and food due to the greater volatility of their prices, will average 2.9% in 2024, 2.3% in 2025 and 1.9% in both 2026 as in 2027.
“The majority of underlying inflation indicators suggest that inflation will stabilize steadily around the Governing Council’s objective of 2% in the medium term,” it stated in its statement, which also recognizes that internal inflation remains “high” due to the “considerable delay” in the adjustment of wages and prices in “some sectors.”
Regarding economic activity, ECB experts now foresee a slower economic recovery than in September projections due to the slowdown in GDP readings for the fourth quarter. Overall, the economy is expected to grow 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027.
The estimated recovery is based mainly on the increase in real incomes, which should allow households to consume more and companies to increase investment. It is predicted that the gradual disappearance of the effects of restrictive monetary policy should support a recovery in domestic demand.
The body led by Christine Lagarde has insisted that it has the “determination” to stabilize inflation at the 2% objective in the medium term, for which a data-dependent approach will be applied when setting rates.
In particular, the Governing Council’s decisions on the price of money will be based on its assessment of the inflation outlook taking into account new economic and financial data, the dynamics of underlying inflation and the intensity of monetary policy transmission. , without committing in advance to any specific type path.
INFLATION DATA
The inflation rate in the euro zone stood at 2.3% year-on-year in November, three tenths more than the increase in the previous month and the highest year-on-year increase since last July, according to the community statistical office, Eurostat.
The acceleration in prices in the common currency area reflected the 1.9% drop in the cost of energy after decreasing 4.6% year-on-year in October, while fresh food increased by 2.4% , six tenths less.
When discounting the impact of energy, the inflation rate remained stable at 2.7%, while, if the cost of food, alcohol and tobacco were also excluded, the underlying rate also remained at 2.7%.
Among the EU States, the largest increase in the cost of living in November corresponded to Belgium (5%), Croatia (4%) and Estonia and the Netherlands (in both cases 3.8%). On the other hand, the smallest increases were observed in Ireland (0.5%), as well as in Lithuania and Luxembourg (1.1% for both countries).
In the case of Spain, the interannual rate rose six tenths, to 2.4%, one tenth above the euro zone average.
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