European Central Bank (ECB) Monetary Policy Decision summary

Monetary policy decisions and outlook

• Key ECB interest rates remain unchanged, with main refinancing at 4.25%, marginal lending at 4.50%, and deposit facility at 3.75%, maintaining a restrictive stance to ensure inflation returns to the 2% medium-term target.

• Policy decisions will continue to be data-dependent and assessed meeting by meeting, with no pre-commitment to a specific rate path.

• The June rate cut was transmitted smoothly to money markets, but broader financial conditions remain volatile and financing costs restrictive; average new loan rate to firms at 5.1%, mortgages at 3.8%.

• Credit demand from firms remains weak, while household mortgage demand has increased for the first time since early 2022; credit standards for firms tightened, mortgage standards eased.

• The ECB stands ready to adjust all instruments as needed to ensure inflation returns to target and monetary policy transmission remains smooth.

Economic activity and inflation dynamics

• Euro area economic growth slowed in Q2, with services leading the recovery and industrial production and goods exports remaining weak.

• Labor market remains resilient, with unemployment at a record low of 6.4% and employment growth driven by services.

• Annual inflation eased to 2.5% in June, with food price inflation slowing, energy prices flat, and services inflation elevated at 4.1%.

• Domestic price pressures are high, mainly due to elevated wages compensating for past inflation, while profits have contracted, offsetting some inflationary effects.

• Inflation is expected to fluctuate around current levels for the rest of 2024, then decline toward target in the second half of 2025 as labor cost growth moderates.

Risks and policy considerations

• Downside risks to growth include weaker global economy, trade tensions, and stronger-than-expected monetary policy effects; upside risks to inflation stem from higher wages or profits, geopolitical tensions, and climate-related events affecting food and energy prices.

• Fiscal sustainability and full implementation of the EU's revised economic governance framework are emphasized to support price stability.

• The ECB will closely monitor all incoming data, including GDP, inflation, wages, and profits, to guide future policy decisions.

• Disparities in inflation rates across euro area countries are acknowledged, but policy is set for the euro area as a whole.