European Central Bank (ECB) Monetary Policy Decision summary

Monetary policy decisions and outlook

• ECB lowered its three key interest rates by 25 basis points, with the main refinancing rate at 4.25%, marginal lending at 4.50%, and deposit facility at 3.75% effective 12 June 2024, after nine months of holding steady, reflecting improved inflation outlook and transmission strength.

• Decision to ease policy follows a marked improvement in the inflation outlook, with inflation falling over 2.5 percentage points since September 2023.

• Policy rates will remain restrictive as needed, with decisions made on a data-dependent, meeting-by-meeting basis, without pre-committing to a rate path.

• The Transmission Protection Instrument remains available to counter disorderly market dynamics threatening policy transmission.

• The Eurosystem will reduce PEPP holdings by €7.5 billion per month in the second half of the year, with reinvestments under PEPP to end by year-end, aligning with previous asset purchase reduction modalities.

Asset purchase programmes and liquidity operations

• APP portfolio continues to decline as principal payments from maturing securities are no longer reinvested.

• Flexibility in PEPP reinvestments will be maintained to counter risks to policy transmission.

• Ongoing assessment of targeted longer-term refinancing operations and their repayments will inform the monetary policy stance.

Economic and inflation developments

• Euro area GDP grew 0.3% in Q1 2024 after five quarters of stagnation, with services expanding and manufacturing stabilizing.

• Economic growth is forecast to reach 0.9% in 2024, 1.4% in 2025, and 1.6% in 2026, supported by higher wages, improved trade, and less restrictive monetary policy.

• Headline inflation is projected at 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026; core inflation (ex-energy and food) at 2.8%, 2.2%, and 2.0% respectively.

• Annual inflation rose to 2.6% in May, with services inflation increasing to 4.1% and goods inflation declining to 0.8%.

• Wage growth remains elevated but is expected to moderate; profits are absorbing some of the rise in unit labor costs.