publication
2025-06-05 14:15
The European Central Bank decided to reduce interest rates in a row, bringing a deposit rate near the current HICP inflation. In this arrangement, a real interest rate in the euro area was near zero.
– The Presidents' Council has decided today to reduce three basic EBC interest rates by 25 base points. In particular, the decision to lower the deposit foot – through which the Presidents' Council controls the attitude of monetary policy – is based on an updated inflation forecast, dynamics of inflationary processes and monetary transmission forces – we read in the June press release of the European Central Bank.
Interest rate of basic refinancing operations will be reduced from 2.40% to 2.15%.
The deposit foot will go down from 2.25% to 2.00%, and the loan rate from 2.65 %to 2.40 %. In this way, the basic interest rate in the ECB (which has been the interest rate on deposits since last year) almost equalized HCIP inflation for the last 12 months, which in May was 1.9%. This means that A real interest rate in the euro area, the ex post is currently similar to zero.
It is therefore The final end of the episode of a slightly restrictive monetary policy in the euro area. Earlier, in the years 2010-23, the European bank centrally kept interest rates below HICP inflation in Euroland almost all the time. The real interest rate in the euro area was therefore negative for almost all this period. It seems that after less than two years of real positive feet we return to the zone of real negative values.
– Inflation is currently at a level similar to the medium -term purpose of the CEO of the Presidents of 2%. In the base scenario of new eurosystem expert projections, total inflation will be on average 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027. Reviews down – by 0.3 percentage points On 2025 and 2026 – compared to March projections, they are mainly a reflection of the strengthening of the euro and the adoption in the assumptions of lower energy prices. Inflation, excluding energy and food prices according to expert predictions, which have not changed from March from March, will be on average 2.4% in 2025 and 1.9% in 2026 and 2027. – This is how the June decision was justified by the CEOs of the Presidents.
The June decision of the CEO of the CEO for anyone could not be a surprise. In the market, interest rates of 25 PB were widely expected to reduce interest rates. In April, Goldman Sachs analysts forecasted cutting in June and one more in July (also at 25 pb.). In their opinion, the “target level” will be 1.50%. So most likely below the HICP inflation rate.
– Most base inflation indicators show that inflation will permanently stabilize at a level similar to the medium -term purpose of the Presidential Council of 2%. The wage dynamics is still increased, but it still clearly weakens, and its inflationary impact is partly absorbed by profits. The fears have decreased that the increased uncertainty and variable reaction of markets to commercial voltages from April will affect the exacerbation of financing conditions – the EBC was written in the June press release.
EBC is cutting and not watching back
It was the eighth reduction of interest rates at the European Central Bank as part of the cycle of loosening monetary policy started in 2024. In June last year, a decision was made about the first reduction in interest rates in the euro area since 2019. Earlier, for nine months, EBC feet were kept at the highest levels since 2001. The total scale of these reductions is already 200 PB. in the case of deposit foot and 235 PB. in the case of refinancing operations.
Previous reduction of credit costs at EBC took place in April. Earlier, the Frankfurt institution cut feet at the beginning of March and at the end of January. In mid -December, the Presidents' Council reduced the costs of the loan by also 25 PB. In October, EBC decided to cut the feet by 25 pb, and in September he lowered the deposit foot also by 25 pb, while reducing the reference foot by as much as 60 pb. as part of the “narrowing” of the percentage corridor announced in March.
The loosening of the monetary policy in EBC began a few months before the decrease in HICP inflation in the euro area to the level desired by the central bank. It wasn't until the previous month that Euroinflation was below the permissible 2%. This was only the second reading below 2% in the last four years.
– The Presidents' Council is determined in the pursuit of that inflation permanently stabilizes at the target level of 2% in the medium period. Considering in particular the current conditions of extraordinary uncertainty, the Presidents' Council will determine the appropriate attitude of monetary policy based on data and on a regular basis, from the meeting to the meeting – the monetary authorities of the euro area once again assured, dispelling all doubts of skeptics.
But quantitatively still strengthens the policy
Parallel to the ECB interest rates, he pursues the “quantitative strengthening” (QT) of monetary conditions. As part of the QT, the APP portfolio is reduced at a specific and predictable pace, because the Eurosystem no longer reinvests of capital repayments from falling securities. From July 2023, the Presidents' Council has stopped reinvesting under the APP program.
The wallets of APP and PEPP programs are reduced at a specific and predictable pace, because the Eurosystem will no longer reinvest the repayment of capital from falling securities – it was written. EBC ceased reinvestment under the PEPP program at the end of 2024.
Another meeting of the CEOs Council is scheduled for July 23-24.
