In October 2024, the European Central Bank (ECB) lowered its three key interest rates by 25 basis points, marking the third consecutive reduction this year following similar cuts in September and June. The new rates stand at 3.25% for the deposit facility, 3.40% for main refinancing operations, and 3.65% for the marginal lending facility. These cuts are a response to the ECB’s success in bringing inflation under control, as inflation fell below the bank’s 2% target in September for the first time in over three years.

Progress in Managing Inflation

The ECB’s decision reflects progress in managing inflation, which has been a significant challenge in the eurozone in recent years. After consistently being above target, the decline in inflation below 2% in September marks a pivotal moment in the ECB’s efforts to stabilize prices. While short-term inflation is expected to increase due to factors like energy prices, the central bank projects that inflation will gradually ease toward the 2% target by 2025.

Wage Growth and Economic Outlook

Another factor influencing the ECB’s rate decision is wage growth, which has remained relatively high, contributing to inflationary pressures. However, recent data indicates that wage growth is starting to slow, offering some relief to policymakers. Despite these encouraging signs, the ECB is committed to maintaining restrictive interest rates to ensure inflation remains aligned with its medium-term goals.

Data-Driven Monetary Policy

The ECB has emphasized that it will continue to adopt a flexible, data-driven approach to monetary policy. By closely monitoring economic developments, particularly inflation trends and wage growth, the bank aims to adjust its policies as necessary to maintain price stability and support sustainable economic growth across the eurozone.

Conclusion

The ECB’s October 2024 interest rate cuts are part of a broader strategy to keep inflation in check while supporting the euro area’s economic recovery. With inflation below the target for the first time in years, the central bank is cautiously optimistic about achieving its medium-term goals but remains vigilant in adapting to evolving economic conditions.