Would you like to receive notifications on latest updates of the following headlines?

European central bank cuts interest rates amid sluggish growth

POSTED ON September 13, 2024 •   World      BY Abiodun Saheed Omodara
European Central Bank (ECB) president Christine Lagarde l Credit: AFP

The European Central Bank (ECB) on Thursday cut interest rates by a quarter percentage point to 3.5% in response to falling Eurozone inflation and signs that the bloc’s economy risks grinding to a halt.

The decision came while ECB president Christine Lagarde warned that the recovery is continuing to face some headwinds.

She said Thursday’s decision to lower the benchmark deposit rate for the second time this year was “unanimously decided.”

The decision also comes less than a week before the Federal Reserve is widely tipped to begin loosening US monetary policy. The Bank of England, which has reduced rates once so far, meets a day later.

Experts forecast that the ECB will likely lower interest rates again in its upcoming two meetings this year.

The ECB cut once in June and then hit pause in July before going on summer break in August.

The rate-setting council led by Lagarde has to juggle concerns about a disappointing outlook for growth against – which argues for cuts – against the need to make sure inflation is going to reach the bank’s 2% target and stay there – which would support keeping rates higher for a bit longer.

Inflation in the 20 countries that use the euro currency fell to 2.2% in August, not far from the ECB’s 2% target, down from 10.6% at its peak in October 2022.

At her post-decision news conference, Lagarde said recent data had confirmed “our confidence that we are heading towards our target in a timely manner.”

Following Lagarde’s comments, the performance of euro to US Dollar rose about 0.27%, selling at 1.1041.

ECB Staff see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, as in the June projections.

Also, inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates.

“Inflation should then decline towards our target over the second half of next year,” Lagarde said.

However, she declined to detail the bank's future rate-cutting path, only saying that decisions would be made “meeting by meeting” based on economic data, without committing to a fixed rate path.

Lagarde said, “We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim.”

She added that the ECB board will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.

“In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path,” the ECB President said.

Wage Growth

Lagarde said negotiated wage growth will remain high and volatile in 2025. However, overall labor costs are slowing, and the growth of compensation per employee is expected to markedly slow again next year.

She said staff expect unit labor cost growth to continue declining over the projection horizon owing to lower wage growth and a recovery in productivity.

Finally, profits are continuing to partially offset the inflationary effects of higher labor costs.

Lagarde noted that the labor market remains resilient. The unemployment rate was broadly unchanged in July, at 6.4%. At the same time, employment growth slowed to 0.2% in the second quarter, from 0.3% in the first.

Recent survey indicators point to a further moderation in demand for labor, and the job vacancy rate has fallen closer to pre-pandemic levels, the ECB president said.

According to survey indicators, Lagarde said the recovery is continuing to face some headwinds.

“We expect the recovery to strengthen over time, as rising real incomes allow households to consume more. The gradually fading effects of restrictive monetary policy should support consumption and investment,” she said.

ECB staff project that the economy will grow by 0.8% in 2024, rising to 1.3% in 2025 and 1.5% in 2026. This is a slight downward revision compared with the June projections, mainly owing to a weaker contribution from domestic demand over the next few quarters.

READ ALSO
IMF warns U.S. tariffs could threaten global economic stability
BY Abiodun Saheed Omodara April 4, 2025 0

The managing director of the International Monetary Fund, Kristalina Georgieva, has voiced her appre...

READ ALSO
German eye Nigeria's mineral wealth as foreign direct investments surge
BY Abiodun Saheed Omodara April 3, 2025 0

Ongoing initiatives to draw in Foreign Direct Investments (FDIs) seem to be bearing fruit, as certai...

READ ALSO
U.S. shows highest anxiety over AI Job loss amidst technological advancements
BY Abiodun Saheed Omodara April 3, 2025 0

Despite its advanced status, research indicates that the United States of America (USA) has the high...

READ ALSO
Sahel States' 0.5% Levy on Imports threatens Regional Trade and Economic Unity
BY Abiodun Saheed Omodara April 1, 2025 0

Mali, Burkina Faso, and Niger have intensified their separation from the regional economic bloc by i...

READ ALSO
FG sets August deadline for irregular migrants to regularize status
BY Abiodun Saheed Omodara March 26, 2025 0

ABUJA, Nigeria - The Federal Government has revealed its intention to enforce stricter measures agai...

READ ALSO
Nigeria seeks Egyptian expertise in power generation, rural electrification
BY Abiodun Saheed Omodara March 24, 2025 0

ABUJA, Nigeria - The Federal Government has announced its intention to learn about power generation...

READ ALSO
Cataracts and Glaucoma: Key causes of blindness in Plateau- Health Commissioner
BY Abiodun Saheed Omodara March 20, 2025 0

The health commissioner of Plateau, Nicholas Baamlong, has announced that the state has a blindness...

READ ALSO
India reaffirms commitment to strengthening ties with Nigeria
BY Abiodun Saheed Omodara March 20, 2025 0

LAGOS, Nigeria - The High Commission of India has reiterated its commitment to enhancing bilateral r...

OUR CHANNELS:

Plateau partners NRC to revitalize Jos–Kuru railway corridor
BY Abiodun Saheed Omodara April 8, 2025 0

PLATEAU, Nigeria (NAN) - The government of Plateau State has entered into a Memorandum of Understand...


NiMet warns of high temperatures, possible thunderstorms
BY Abiodun Saheed Omodara April 8, 2025 0

ABUJA, Nigeria (NAN) - The Nigerian Meteorological Agency (NiMet) has forecasted sunny weather and t...


Nigeria, Sweden unite for sustainable development and economic growth
BY Abiodun Saheed Omodara April 8, 2025 0

ABUJA, Nigeria (NAN) - Nigeria and Sweden reaffirmed their dedication to enhancing bilateral relatio...


FG unveils MAMII to ensure safe deliveries and healthier mothers
BY Abiodun Saheed Omodara April 8, 2025 0

In an effort to decrease maternal mortality rates, the federal government has initiated the Maternal...


I am raising funds for my release- 2face Idibia
BY Abiodun Saheed Omodara April 8, 2025 0

Multiple awards winning singer, Innocent Idibia, popularly called 2Baba, has faulted the claim by hi...


Wife urge court to remand Husband over assault
BY Abiodun Saheed Omodara April 8, 2025 0

LAGOS, Nigeria - A mild drama unfolded on Monday at the Ojo Magistrates’ Court in Lagos State...


FG allocates N2.035bn to enhance basic education across Nigeria
BY Abiodun Saheed Omodara April 8, 2025 0

ABUJA, Nigeria - The Federal Government has allocated N2.035 billion to 1,147 school-based managemen...


NDPC launches initiative to combat cyberbullying, financial fraud through data protection
BY Abiodun Saheed Omodara April 9, 2025 0

The National Data Protection Commission (NDPC) on Monday reiterated its dedication to enhancing data...


Lagos-Calabar coastal highway to feature climate-resilient design- Minister of Works
BY Abiodun Saheed Omodara April 9, 2025 0

The Minister of Works, Sen. Dave Umahi, has assured that the Lagos-Calabar Coastal Highway is being...


One dead, three injured in Lagos explosion involving military-grade grenade
BY Abiodun Saheed Omodara April 8, 2025 0

LAGOS, Nigeria - The Lagos State Police Command has reported one fatality from the explosion that to...


More Articles

Load more...

Menu