Christine Lagarde, President of the European Central Bank (ECB), and Luis de Guindos, Vice-President of the ECB, announced a reduction in the three key ECB interest rates by 25 basis points. This decision aims to adjust the monetary policy stance based on updated assessments of inflation outlooks and monetary policy transmission.
Lagarde noted that "the disinflation process is well on track," with projections indicating headline inflation averaging 2.4% in 2024 and stabilizing around 2% by 2026. Inflation excluding energy and food is expected to follow a similar trend.
Despite easing financing conditions due to recent rate cuts, Lagarde acknowledged that they remain tight because past hikes are still affecting credit. Economic recovery forecasts have been adjusted downward since September's projections, with growth expected at 0.7% in 2024.
The ECB remains committed to ensuring inflation stabilizes at its medium-term target of 2%. Lagarde emphasized a "data-dependent and meeting-by-meeting approach" for future monetary policy decisions without pre-committing to specific rate paths.
The economy grew by 0.4% in the third quarter, driven mainly by consumption and inventory buildup, but indicators suggest slowing momentum. The labor market remains resilient with an unemployment rate at a historical low of 6.3%.
Fiscal policies should enhance productivity and competitiveness according to Lagarde's remarks referencing Mario Draghi’s proposals for European competitiveness improvements.
Inflation rose to 2.3% in November due to energy-related factors while domestic inflation eased slightly but remained high at 4.2%. Compensation per employee growth moderated recently contributing to slower unit labor cost increases.
Risks to economic growth include potential global trade frictions and geopolitical tensions such as conflicts involving Russia or the Middle East which could disrupt energy supplies.
Market interest rates have declined since October reflecting perceived economic outlook deterioration despite restrictive financing conditions persisting for firms and households seeking loans or mortgages.
In conclusion, euro area banks show resilience with few signs of financial stress though macroprudential policies continue as primary defenses against financial vulnerabilities according to ECB assessments.