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ECB Rates: Impact of the Cut on Markets and the Economy

ecb rates

The ECB Cuts Rates for the First Time Since 2019

The European Central Bank (ECB) announced a rate cut on Thursday, 6 June, lowering the deposit rate from 4% to 3.75%, the benchmark rate from 4.50% to 4.25%, and the marginal lending rate from 4.75% to 4.50%. This hasn’t happened since 2019.

This decision was made despite inflation forecasts being revised upwards, indicating a slow and irregular path for rate reductions.

Future Interest Rate Decisions

Christine Lagarde, President of the ECB, emphasized that future rate decisions will be made “meeting by meeting” and warned of a bumpy path ahead. She added: “Today’s rate cut reflects the confidence we have in the growth path, but to continue this process, we must wait for analyses to confirm that we are in economic recovery.”

Despite the rate cut, the ECB provided no precise guidance on future moves, stressing that inflationary pressures remain high. Updated forecasts show average inflation of 2.5% for 2024, 2.2% for 2025, and 1.9% for 2026.

Impact on the Labour Market and Economy

The ECB revised its growth forecasts for 2024 upwards, now estimated at 0.9% compared to the 0.6% predicted in March. However, prospects for 2025 were slightly reduced to 1.4%, while those for 2026 remain unchanged at 1.6%. This scenario indicates moderate economic growth in the coming years, with inflation likely to stay above the 2% target until 2025.

Lagarde indicated that wage growth, although still high, is expected to slow down during the year, helping to reduce inflationary pressures. However, rate cuts are likely to slow, with inflation remaining above the ECB’s target for most of 2025. This implies that the ECB will closely monitor various economic indicators to determine future monetary policy.

Consequences of the ECB Rate Cut

The ECB’s rate cut will have several consequences:

  • Reduction in credit costs: Households and businesses will benefit from lower interest rates on loans, thus promoting access to credit and stimulating consumption and investment.
  • Impact on savers: Lower interest rates may penalise savers, reducing returns on bank deposits and government bonds.
  • Stimulus to economic growth: Lower borrowing costs should encourage spending and investment, supporting economic growth. However, the effectiveness of this measure will also depend on global economic conditions and domestic demand.
  • Inflation and wages: The rate cut could influence inflation and wage dynamics. Although Lagarde has signalled that wage growth will slow, inflation may remain high in the short term, further complicating the ECB’s future decisions.

Market Reactions

Financial markets had anticipated the rate cut, pricing in a 25 basis point downward move. Following the rate cut announcement, eurozone government bond yields rose significantly. In particular, the 10-year German bond yield increased by nearly 8 basis points to 2.573%, while the 2-year bond yield rose by just under 6 basis points to 3.033%. Yields on Italian and Spanish 10-year government bonds also rose by 9 and 7 basis points, respectively, to 3.893% and 3.299%.

International Comparison

Despite starting to raise rates later than other central banks, the ECB is now leading with the June cut. The US Federal Reserve, for instance, is still grappling with higher inflation. Other countries like Canada, Sweden, and Switzerland have already started to reduce interest rates in the current cycle.

The ECB has clarified that future moves will depend on economic data and that there is no predetermined path for further rate cuts. With inflation still above target and moderate economic growth, the future of European monetary policy remains uncertain, requiring constant attention and careful assessment of all variables at play.

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Deciphering the ECB: Interest Rates, Inflation and What it Means for You

Deciphering the ECB: Interest Rates, Inflation and What it Means for You

On 11 April 2024, the European Central Bank (ECB) is set to make a decision that could affect the economy across Europe. Recent data showing a surprising drop in inflation rates in France and Italy are growing speculation about a potential interest rate cut. This article explains the basics of the ECB’s role, inflation dynamics, and the possible impacts of upcoming policy decisions.

The European Central Bank explained

The ECB guards monetary stability for the Eurozone countries, ensuring that the euro remains a stable and reliable currency. Its main tool for achieving this goal is manipulating interest rates, a lever that directly influences economic activity across the continent.

The importance of ECB decisions

The ECB’s decisions have repercussions for the entire economy, from the expansion of companies that borrow to invest in their businesses to interest rates on personal savings accounts or mortgages. 

The adjustment of interest rates can, in fact, stimulate economic growth by making borrowing cheaper or, on the contrary, cool an overheated economy. In other words, the health of the economy, reflected in employment rates, business growth, and consumption, is directly influenced by ECB policies.

ECB impact on markets 

The ECB’s decisions affect not only the traditional economy but also the investment world, including cryptocurrencies. 

When the ECB changes interest rates, it affects how people invest their money. If interest rates are low, it costs less to borrow money, which may make investing in stocks or real estate more attractive. On the other hand, if rates rise, keeping one’s savings in bonds with lower risk rates may become cheaper.

Although cryptocurrencies belong to a market that is considered more volatile, they are not insulated from the effects of these policies. The ECB’s decisions may influence investors’ risk appetite: in times of low rates, some may seek higher returns in cryptocurrencies, while in times of higher rates, they may prefer investment options considered safer.

The element that most influence interest rate decisions is inflation. 

The role of inflation and its effects

Inflation measures how much more expensive goods and services have become in a given period. A certain level of inflation is normal and even desired in a healthy economy, as it indicates growth. However, too high or too low inflation can signal trouble, affecting everything from your grocery bill to your savings.

High inflation means your money is not worth as much as before, affecting how households plan their budgets and the future. To manage inflation, central banks such as the ECB adjust interest rates. Lowering rates can encourage spending and investment by making borrowing cheaper while raising rates can help cool a sluggish economy.

How to monitor ECB decisions 

To monitor these dynamics, you can use Young Platform. As an app and on the web, Young Platform offers free membership and publishes updates that allow you to monitor the impact of economic news on cryptocurrency prices in real-time. Additionally, on the Young Platform website, all content, news, and in-depth articles are free, providing a valuable resource for staying informed.

Join Young Platform

Another useful strategy is to mark the dates of upcoming ECB meetings on your calendar or follow live press conferences. This allows you to be among the first to understand the ECB’s decisions and how they might affect the market, including cryptocurrency.

The current economic scene

Recently, there was a positive surprise for the Eurozone economy, including in countries such as Italy, France, and Germany. Inflation, i.e., as we have seen, how fast the prices of goods and services such as food, clothes and petrol rise, fell more than everyone expected in March 2024, to 2.4%. Experts thought it would remain at 2.6 per cent. The core inflation rate, which excludes volatile components such as energy, food, alcohol and tobacco, also decreased from 3.1 per cent to 2.9 per cent. This might seem like a small change, but it has great significance.

  • France: inflation slowed down significantly, with declines in the prices of services, energy and food.
  • Italy reported lower-than-expected inflation rates, following a similar trend to France.
  • Germany has the largest economy of all the Eurozone countries and saw prices increase by only 2.2%, the slowest pace in three years. 

When inflation falls, it means that price increases slow down. For people, this might mean that the money they earn ‘lasts longer’ and that they notice fewer price increases when they shop daily. Inflation cooling in more than two major Eurozone economies has led to more speculation about the ECB’s next step.

What would an ECB rate cut signify?

Interest rates influence how much it costs to borrow money. When they are low, people and companies can borrow more easily to buy a house or invest in new projects.

Thus, if the ECB decided to lower short-term interest rates, it could make loans and mortgages cheaper, stimulating economic growth. However, for savers, this could mean lower returns on savings accounts.

Some numbers to watch out for 

Despite the good news, not all sectors are slowing down similarly. Inflation in services, such as restaurants and transport, remained more or less the same, showing that wages can still push up prices in some areas. The ECB needs to consider this carefully, as such an increase could result in a postponement of the interest rate cut.

The labour market 

While discussing inflation and interest rates, we have to consider another important factor for this picture: the labour market. In February 2024, the number of people out of work in the euro area was 6.5 per cent, slightly lower than last year. This means that, despite everything, people are finding jobs, which is a good sign for the economy. However, the forecast for March given by Istat is not the best, with a provisional 7.5% unemployment rate.

The difficult task of the ECB 

Not all Eurozone countries experience the same situations and have the same economic climate. This difference between countries is crucial for the ECB when considering interest rates. It has to ensure that whatever decisions it makes work not only for countries with inflation problems but also for those doing well. The ECB has the complicated task of keeping everything in balance without causing problems in any area.

Conclusion 

All of this affects us closely, from falling inflation to stable unemployment rates and differences between countries. It affects how much the things we buy cost, how easily companies can grow and, ultimately, how many people can find work. While we wait to see what the ECB decides, we can be sure its actions will directly impact our personaleconomy, investments, and jobs.

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ECB meeting: results of the March 2024 conference

ECB September 2024 meeting: interest rate forecasts

This article explores the outcome of the ECB’s March 2024 meeting, scheduled for 7 March 2024, by analysing decisions on interest rates, asset purchase programmes and adjustments in operational frameworks. As the eurozone faces inflationary changes and economic growth trajectories, understanding the ECB’s strategic responses is crucial for financial professionals, investors and policy analysts.

ECB Monetary Policy Decisions  

In a move closely watched by markets and policymakers, the ECB Governing Council kept key interest rates unchanged, reflecting a nuanced approach to the fragile eurozone economic recovery and falling inflation. 

The decision to keep the rates for the primary refinancing operations, the marginal lending facility and the deposit facility at 4.50%, 4.75% and 4.00%, respectively, underlines the ECB’s cautious optimism and commitment to price stability.

This decision is based on a complex economic environment characterised by declining inflation but persistent domestic price pressures, particularly wage growth. 

The latest staff projections indicate a downward revision of inflation rates for the coming years, with an average expectation of 2.3% in 2024. These provide a glimpse of the ECB’s challenges. The figures and softened growth forecasts underline the delicate balance the ECB aims to strike between supporting economic growth and keeping inflation within its target.

APP and PEPP

A significant part of the adjustments to the ECB’s monetary policy instruments concerns the Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP). The decision to let the APP portfolio decline aligns with a gradual normalisation strategy, moving away from pandemic-era monetary support measures. The gradual reduction of the PEPP portfolio, scheduled to decline by EUR 7.5 billion per month in the second half of 2024, indicates the ECB’s intention to withdraw cautiously from expansionary monetary stimulus, reflecting a response to the improving, albeit still precarious, economic landscape.

The ECB’s approach to refinancing operations was also reviewed. This analysis underlines the ECB’s efforts to refine its monetary instruments better to align them with current and projected economic conditions, ensuring that liquidity provisions to banks are consistent with broader policy objectives.

These programme adjustments are not merely technical changes but signal a deeper transition in the ECB’s policy paradigm. The ECB navigates towards normalisation by carefully scaling back asset purchases and recalibrating refinancing operations while remaining nimble enough to respond to new economic shocks or developments.

Economic Outlook 

The March 2024 meeting also highlighted the ECB’s long-term strategic planning, mainly through changes to its operational framework for implementing monetary policy. 

The sluggish growth forecast in 2024 suggests a euro area grappling with internal and external pressures, from high government debt ratios to global trade uncertainties. However, the anticipated rebound in consumption and investment from 2025 to 2026 reflects confidence in the region’s underlying economic resilience and the expected easing of inflationary pressures.

This section of the ECB report emphasises the role of supportive fiscal and structural policies alongside monetary strategies. The ECB’s call for rapid implementation of the Next Generation EU programme and greater integration in banking and capital markets emphasises the multifaceted approach needed to address current economic challenges and strengthen long-term growth.

Conclusion 

The March 2024 ECB meeting encapsulates a critical moment in the eurozone monetary policy landscape. By maintaining interest rates, refining asset purchase programmes, and refinancing operations, the ECB carefully balances its immediate responses to current economic conditions with its long-term strategic objectives. 

As inflation rates adjust and economic projections evolve, ECB policies will be crucial in shaping the euro area’s path to recovery and stability.

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When is the next ECB meeting? The complete 2024 calendar to monitor

ECB meeting calendar

The 2024 calendar of must-see meetings

When will the next ECB meeting take place? The central bank’s calendar is constantly monitored not only by investors or market experts. Even ordinary Eurozone citizens follow the central bank’s meetings with interest and apprehension, as its decisions can affect households’ portfolios.

Therefore, every ECB meeting is eagerly awaited and preceded by countless predictions about Christine Lagarde’s and the Governing Council’s moves, whose words are constantly scrutinised. Here, then, is the 2024 calendar (and beyond) of meetings to monitor and attend all of the appointments with the Frankfurt institution.

You might also be interested in Deciphering the ECB: Interest Rates, Inflation and What it Means for You.

Next ECB monetary policy meeting: calendar 2024

The ECB’s annual calendar has several appointments. It generally meets twice a month, but monetary policy decisions are discussed only every six weeks. These are the most eagerly awaited meetings because they can influence the financial and other markets. The ECB calendar is, therefore, divided into two parts: the upcoming monetary policy meetings and the non-monetary policy meetings. 

The first category of appointments, which always falls on a Thursday, is followed by the press conference of the institution’s president, Christine Lagarde, who presents what has been decided to the public and journalists.  

What is discussed during each ECB monetary policy meeting? The main topics are generally Eurozone growth and GDP, quantitative tightening, inflation trends, and interest rates. 

Interest rate decisions are significant because they directly impact people’s savings and purchasing power. Rising interest rates, for example, have various consequences, including rising mortgage costs. On the other hand, raising or lowering interest rates is essential for the ECB to fulfil its primary task of keeping prices stable. 

The initial question arises: when is the next ECB meeting? Here is the 2024 calendar of monetary policy meetings:

Except for the October meeting in Ljubljana, every ECB meeting in 2024 will be held in Frankfurt and chaired by the Governing Council of the European Central Bank, the institution’s main decision-making body. This consists of President Christine Lagarde, Vice-President Luis de Guindos, four members appointed from among the leading Eurozone countries who hold office for eight years, and the governors of the national central banks.  

After each meeting, investors monitor the markets to gauge the reactions to the European Central Bank’s decisions. Some of these also impact the cryptocurrency market. Therefore, the upcoming ECB meetings, like those of the Fed (Fed calendar 2024), should be watched. On Young Platform, the leading cryptocurrency exchange, you can monitor cryptocurrency prices simultaneously as reports on each ECB meeting. 

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Next ECB non-monetary policy meeting: calendar 2024

The ECB meeting calendar also includes meetings not dealing with monetary policy issues. On these occasions, the other tasks and responsibilities of the European Central Bank, such as banking supervision for the Eurozone, are fulfilled. Here are all the dates of the upcoming meetings: 

  • 21 February 2024
  • 8 May 2024
  • 22 May 2024
  • 19 June 2024
  • 1 July 2024
  • 25 September 2024
  • 13 November 2024
  • 27 November 2024

The General Council also convenes another type of ECB meetings, which have advisory and coordination functions: 

  • 21 March 2024
  • 20 June 2024
  • 26 September 2024
  • 28 November 2024

ECB meeting calendar 2023

To review past meetings and conferences, this is the calendar of every ECB monetary policy meeting held in 2023. Except for the October meeting in Athens, every ECB meeting in 2023 was held in Frankfurt. 

  • 2 February 2023
  • 16 March 2023
  • 4 May 2023
  • 15 June 2023
  • 27 July 2023
  • 14 September 2023
  • 26 October 2023 
  • 14 December 2023

So, the next ECB meeting in 20243 will soon occur, and all eyes are on the possible cut in interest rates. But this year’s calendar of meetings is complete, and there will be plenty of opportunities to discuss the Eurozone economy. 

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ECB meeting January 2024: decisions and economic outlook

ECB meeting January 2024

As the ECB meeting in January 2024 approached, speculation in the financial markets was rife. However, the decisions made at the January 25, 2024 meeting reflected a cautious approach in a continually evolving economic landscape. In line with analysts’ expectations, the European Central Bank maintained interest rates at their current levels.

Maintaining Interest Rates

The Governing Council of the ECB, in its meeting on January 25, 2024, unanimously decided to keep the three key ECB interest rates unchanged. This decision means that the interest rates on the primary refinancing operations, the marginal lending facility, and the deposit facility remain at 4.5%, 4.75%, and 4%, respectively. This move aligns with the ECB’s commitment to ensuring medium-term inflation aligns with its 2% target.

Statements from Christine Lagarde

Christine Lagarde, President of the European Central Bank, commented, “The Eurozone economy likely stagnated in the last quarter of 2023 and was weak in the first quarter of 2024. However, some indicators point to a recovery later in the year. Inflation, which fell to 2.9% in December, is expected to continue to decline in 2024.” She emphasised that discussing interest rate cuts is still premature, as the ECB must progress further in the disinflation process before being sure that inflation will reach its 2% target.

At the World Economic Forum in Davos, Lagarde highlighted the factors the ECB is monitoring that will influence future interest rate decisions. Notably, she mentioned a shift from the ‘normality’ pre-2023, suggesting that the normalisation observed in 2023 is leading towards a “non-normal” period, where we will witness a change in the drivers of the global economy and new growth modalities.

The Role of Consumption

Until now, consumption has acted as a vital growth engine, driven by favourable conditions that are waning. This gradual depletion of positive factors implies a transformation in the economy’s driving force.

Drastic Reduction in Savings

We have witnessed a significant reduction in excess savings in advanced economies, dropping from an average of 10% to figures close to zero. This decrease, along with a less tense labour market, suggests a decline in consumption power as an economic driving force.

Global Trade and Growth Prospects

Global trade is another element showing signs of normalisation and significantly impacting the Council’s decisions. Europe struggles to keep pace with the significant powers, burdened by the geopolitical situation. Ngozi Okonjo-Iweala, Director-General of the World Trade Organization, emphasised that thanks to the resilience of international trade, Europe has been able to overcome the cut in energy imports from Russia following the invasion of Ukraine.

Governing Council’s Outlook

In the ECB meeting in January 2024, the Governing Council highlighted that new information essentially confirms their previous assessment of medium-term inflation prospects. Despite a base effect causing an increase in overall energy-related inflation, the downward trend in underlying inflation continues.

Monetary Policy: What’s Next?

The Governing Council remains committed to bringing inflation back to the 2% target on time. Based on its current assessment, the Council believes that the ECB reference rates, if maintained sufficiently long, will significantly contribute to achieving this objective.

Asset Purchase Program (APP) and PEPP

During the ECB meeting in January 2024, the Council noted that the APP portfolio is reducing at a measured and predictable pace. Regarding the PEPP (pandemic emergency purchase program), the Council plans to reinvest the capital repaid on maturing securities in the first half of 2024, reducing the PEPP portfolio by an average of €7.5 billion per month in the second half of the year, and ending reinvestments by the end of 2024.

Analysts’ Reactions

Analysts like Morgane Delle Donne, Head of Investment Strategy Europe at Global X, noted that markets anticipate a more dovish turn by the ECB within the year. Martina Daga, Macro Economist at AcomeA SGR, pointed out that the ECB’s acknowledgement of positive progress in inflation and the labour market shows a softer stance. Nicolas Forest, CIO at Candriam, highlighted the ECB’s data-dependent approach, not expecting policy easing before June. David Chappell, Senior Fixed Income Portfolio Manager at Columbia Threadneedle Investments, noted that Lagarde hinted at the possibility of a rate adjustment starting in June.

Growth Estimates

The ECB revised downward its inflation and growth estimates for the Eurozone for the first quarter of 2024. This emerged from the Survey of Professional Forecasters (SPF), involving 59 economists and financial analysts, conducted between January 5 and January 10.

Inflation is expected to decrease to 2.4% in 2024 and stabilise at 2% in 2025 and 2026. Real GDP growth expectations for 2024 and 2025 have also been revised downward, with a slowdown projected at 0.6% this year and a recovery to 1.3% next year.

Conclusion

The ECB meeting in January 2024 concludes with a cautious yet vigilant approach to monetary policy, reflecting the central bank’s commitment to price stability and economic growth amid revised forecasts and changing global conditions. The decision to keep interest rates unchanged, along with the downward revisions in inflation and growth estimates, indicates careful navigation in a complex economic environment.

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Working on a European CBDC, the ECB is also getting Amazon involved

Digital Euro: the ECB working with Amazon for its CBDC

Is the Digital Euro on the way? The European Central Bank is collaborating with five tech companies to study its CBDC

In a statement dated from the 16th of September 2022, the European Central Bank announced its collaboration with five tech companies to test and develop a possible Central Bank Digital Currency. CBDCs are digital currencies that differ from cryptocurrencies in that they are issued by central banks and are therefore not decentralised like Bitcoin is. For the ECB, the main advantage of the digital euro would be its ease and accessibility, since all it would take is a simple internet connection to use CBDC-related banking services. In 2021, the European Union prompted an investigation phase for the development of a CBDC that was supposed to last two years. By mid-2023, the ECB will deliver its final verdict: digital euro yes or no?

Companies selected to develop prototypes and use cases for the CBDC

Before taking a decision on the digital euro, the ECB involved five companies to develop prototypes and use cases in which the CBDC could be used. To choose these companies, a call for applications was made in April 2022. 54 companies interested in working on the digital euro answered the call. On the 16th of September, the selected companies were announced, each with an area of relevance:

  1. CaixaBank: peer-to-peer online payments;
  2. Worldline: offline peer-to-peer payments;
  3. EPI: payments at the point of sale arranged by the payer;
  4. Nexi: payments at the point of sale arranged by the payee;
  5. Amazon: e-commerce payments.

The ECB is therefore working with Amazon and Co. to develop its CBDC. It is time for the prototype operation! These tech companies are called upon to develop front-end service interfaces for the digital euro. The aim is to test transactions with the digital euro, peer-to-peer payment systems, in e-commerce but also at the point of sale. The work on the prototypes will last until the first quarter of 2023 and will then be presented in a report.

Why is the ECB interested in the digital euro?

For the ECB, the digital euro could be a functional supplement to cash. In what sense? The digital euro is not envisaged as a replacement for the euro as we know and use it, but as an additional choice available for payments: ‘it could foster financial innovation and improve the overall efficiency of the payments system’. The CBDC would be an electronic currency issued by the ECB and national central banks, accessible to all citizens and businesses. According to the ECB, the digital euro can only be successful if it is used by European citizens in their daily lives, so it must add value and be genuinely useful. The ongoing tests are verifying precisely these aspects. The ECB continues to test the ground while the White House seems more determined than ever to launch its digital dollar!