Frankfurt, Dec 12 (IANS) The European Central Bank (ECB) decided on Thursday to cut its key interest rates by 25 basis points at its rate-setting meeting.
With this adjustment, the interest rates for the deposit facility, the main refinancing operation, and the marginal lending facility are now set at 3 per cent, 3.15 per cent and 3.4 per cent respectively, the bank said in a statement.
The decision to lower interest rates was “based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission,” the statement said. This marks the ECB’s fourth rate cut this year, reducing rates from their historical highs.
The ECB confirmed that inflation is expected to reach its 2-per cent target in the medium term “on a sustained basis,” citing measures of underlying inflation, Xinhua news agency reported.
In a notable shift, the ECB abandoned its previous rhetoric about keeping policy rates restrictive “as long as necessary,” while reiterating its commitment to a data-dependent approach for determining future monetary policy.
“The Governing Council is determined to ensure that inflation stabilises sustainably at its 2 percent medium-term target,” the bank said in its statement.
Earlier this year, for the first time since 2004, the ECB had announced an annual loss for 2023 following almost two decades of substantial profits.
The bank reported a loss of nearly 1.3 billion euros (1.4 billion US dollars) last year after the release of 6.6 billion euros from provision for financial risks.
The ECB had said that the loss reflected the “necessary monetary policy actions of the Eurosystem” in the fight against high inflation with the many consecutive interest rate hikes since July 2022.
The rise in key interest rates increased the interest expenses for the ECB’s variable-rate liabilities, but the income from the assets did not rise to the same extent or at the same pace, as many had fixed interest rates and long maturities, ultimately resulting in a loss, according to the central bank.
Furthermore, the bank also expected losses “in the next few years” and only then will there be “sustainable profits” again.
The ECB had vowed to effectively fulfill its primary mandate of maintaining price stability, regardless of any losses incurred.
–IANS
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