European Central Bank (ECB) Monetary Policy Decision summary

Monetary policy decisions and outlook

• ECB lowered its three key interest rates by 25 basis points, effective 18 December 2024, with the deposit facility at 3.00%, main refinancing at 3.15%, and marginal lending at 3.40%.

• The decision reflects confidence in inflation converging to the 2% medium-term target, based on updated projections and underlying inflation dynamics.

• The Governing Council will follow a data-dependent, meeting-by-meeting approach, not pre-committing to a specific rate path.

• Asset purchase programme (APP) and PEPP portfolios are declining, with PEPP reinvestments ending by year-end 2024 and targeted longer-term refinancing operations concluding.

• Financing conditions are easing but remain tight, as past rate hikes continue to transmit through credit markets.

Inflation and economic outlook

• Inflation is projected to average 2.4% in 2024, 2.1% in 2025, 1.9% in 2026, and 2.1% in 2027, with core inflation also expected to decline steadily.

• Inflation excluding energy and food is forecast at 2.9% in 2024, 2.3% in 2025, and 1.9% in 2026 and 2027.

• Economic growth is forecast at 0.7% in 2024, 1.1% in 2025, 1.4% in 2026, and 1.3% in 2027, with recovery driven by rising real incomes, investment, and easing monetary policy effects.

• Risks to growth are tilted to the downside, with potential headwinds from global trade friction, geopolitical tensions, and lagged monetary policy effects.

• Most measures suggest inflation will settle near the 2% target, though domestic and services inflation remain elevated due to delayed wage and price adjustments.

Financial and structural conditions

• Market interest rates have declined, making borrowing less expensive, though overall financing conditions remain restrictive.

• Average interest rates on new loans to firms and mortgages have fallen by about half a percentage point from their peaks.

• Bank lending and mortgage growth have picked up modestly, and euro area banks remain resilient with limited financial market stress.

• Fiscal and structural reforms are emphasized as crucial for enhancing competitiveness, productivity, and supporting recovery.

• Debt securities issuance by firms remains steady, while financial stability risks are still elevated.