The decision of the ECB
The European Central Bank (ECB) recently announced a reduction in interest rates by 25 basis points, a step that reflects its strategy for dealing with the current economic environment. This change occurred during the last meeting of the year, where the Board of Directors highlighted how the disinflation process is well under way. Interest rates on deposits, main and marginal refinancing operations were reduced to 3.00%, 3.15% and 3.40%, respectively.
This move is seen as an attempt to stimulate economic growth and support families and businesses in a period of uncertainty
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Economic projections and inflation
According to the ECB’s projections, overall inflation should average 2.4% in 2024, with a slight decline expected in the following years. However, inflation net of the energy and food component remains high, suggesting that wages and prices in some sectors are still adjusting to previous increases. This scenario indicates that, despite the reduction in rates, financing conditions remain tight, and monetary policy continues to be restrictive. Experts predict economic growth of 0.7% in 2024, with a gradual increase expected in the following years
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Impact on growth and domestic demand
The ECB stressed that the economic recovery will be slower than expected, despite signs of growth in the third quarter. Economic indicators suggest a contraction in the current quarter, highlighting the challenges facing the European economy. However, rising real incomes and business investment are expected to support growth in domestic demand in the long term. The ECB is determined to keep inflation around its 2% target in the medium term, taking a data-driven approach for future monetary policy decisions
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