Everything as expected. The ECB cuts again by 25 basis points, the third cut since June. The decline in inflation and concerns about the stability of the economy (starting with the German one) have pushed Lagarde & Co to accelerate the end of years of restrictive policy. The president, in a press conference, spoke of “a soft landing” and defined a further tightening of trade barriers as “a downside risk” for growth prospects.
The reduction came from the meeting in Slovenia, near Ljubljanainterest rates today by 25 basis points, bringing them to 3.25%. The “disinflationary process is well underway,” Eurotower said, highlighting that eurozone inflation fell to 1.7% in September, below the 2% target. An objective which at the September meeting was foreseen in the second half of 2025 and today is seen as achievable “over the course of next year”. Even though the president of the ECB has clearly said that the fight against 2% (stable) inflation has not yet been won.
This data, together with the “recent downward surprises in economic activity indicators”, has pushed the ECB to continue with the cycle of rate cuts to support the economy and maintain more favorable financial conditions. Volatility in industrial production, consumption increasing less than expected and slow growth in services are alarm bells about growth.
The economic situation in the eurozone shows signs of weakness, especially in Germany, which is technically in recession, and in France, whose growth is stagnant. Only Spain offers a more positive picture, with growth of 2.7%. The risk of a generalized recession has pushed Frankfurt to maintain an expansionary monetary policy, also in light of wage pressures, which continue to keep domestic inflation high. Furthermore, the slowdown in price growth is seen as an opportunity to encourage credit to families and businesses, which have suffered from rising financial costs in recent years.
The reduction in rates has a direct impact on the mortgage market, especially those with variable rates, indexed to Euribor, the reference rate for many mortgage loans in Europe.
With the cut decided by the ECB, the Euribor has already fallen by around 25 cents in recent weeks, stabilizing around 3.2%. This translates into a slight relief for those who already have a variable rate mortgage. For an average loan of 200,000 euros, the monthly payment should drop by around 18 euros, equal to a saving of 216 euros per year.
And now what happens? The rate cut probably won’t be the last. Analysts predict that the ECB will continue on this path, with a further reduction in rates as early as the December meeting. In the medium term, the ECB’s objective is to bring inflation back to stable around 2% and support a more robust economic recovery. But, as Lagarde herself underlined, prudence will be key: the central bank will “keep rates at restrictive levels for as long as necessary” to ensure that inflation does not start to grow again too quickly.
