European Central Bank (ECB) Monetary Policy Decision summary

Monetary policy decision and rationale

• Key ECB interest rates were lowered by 25 basis points, with the deposit facility at 3.25%, main refinancing at 3.40%, and marginal lending at 3.65% from 23 October 2024, reflecting confidence in the disinflationary process and updated inflation outlook.

• Policy remains data-dependent, with no pre-commitment to a specific rate path; future decisions will be made meeting by meeting based on incoming economic and financial data.

• Financing conditions remain restrictive, and rates will stay sufficiently restrictive as long as needed to ensure inflation returns to the 2% medium-term target.

• ECB stands ready to adjust instruments to ensure inflation returns to 2% target and maintain policy transmission.

• Decision reflects updated inflation outlook, underlying inflation dynamics, and monetary policy transmission strength.

Economic outlook and risks

• Economic activity has been weaker than expected, with manufacturing contracting, services growth slowing, and exports weakened, but the labor market remains resilient with unemployment at 6.4%.

• Household consumption is below expectations despite rising incomes, and the saving rate remains elevated.

• Risks to growth are tilted to the downside, including geopolitical tensions, weaker global demand, and potential stronger-than-expected effects from past monetary tightening.

• Inflation is expected to rise in the coming months due to base effects, then decline to target next year, with wage growth remaining high but gradually easing.

• Annual inflation fell to 1.7% in September, the lowest since April 2021, as energy prices dropped sharply.

Financial and credit conditions

• Average interest rates on new loans to firms at 5.0% and new mortgages at 3.7% in August; short-term market interest rates have declined since September.

• Credit standards for business loans unchanged in Q3 after two years of tightening; demand for loans by firms rose for the first time in two years.

• Mortgage credit standards eased for the third consecutive quarter; demand and lending for mortgages increased.

• Lending to firms and mortgage lending remain subdued, with annual growth rates of 0.8% and 0.6% respectively.

• Financing conditions remain restrictive.