The ECB cut the main deposit rate by 0.25% as expected, growth forecasts fell

European Central Bank (ECB) policymakers announced their unanimous decision to cut the main deposit rate by 0.25%, as expected, after the previous cut in June.

The central bank cut its deposit facility rate from 3.75% to 3.50% and the main refinancing rate from 4.25% to 3.65%, citing weaker growth prospects due to a slowdown in private consumption and investment activity.

Link to the September ECB Monetary Policy Statement

The updated economic projections showed slight declines in growth estimates to just 0.8 percent this year and 1.3 percent next year, compared with forecasts of 0.9 percent and 1.4 percent in June.

Meanwhile, estimates for headline inflation remained unchanged at 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. Core inflation projections were even revised higher to account for more strong price pressures in the services sector.

During press time, ECB chief Lagarde reiterated that they are refraining from pre-committing to a set interest rate path. She also explained that they are looking at a wide range of indicators, adding that moderating labor cost pressures are offsetting the impact of services inflation.

Market reactions

Euro vs. Main currencies: 5 min

EUR chart overlay against major currencies by TradingView

The euro, which had been cautiously trading in ranges earlier in the day, has already seen a slight increase in volatility about an hour before the ECB’s current event.

EUR/JPY and EUR/CHF had already started to decline ahead of the announcement, while EUR/CAD and EUR/GBP were slightly higher. The ECB statement, which came largely as expected, did not appear to push the common currency in a clear direction as it edged slightly higher against the yen, continued to fall against the franc and gave back some gains against sterling .

EUR/CAD and EUR/USD continued to rise, however, and Lagarde’s press conference appeared to support the pair’s gains, eventually joined by EUR/AUD and EUR/NZD. EUR/JPY, which was initially lower at press time, also rose with EUR/CHF following Lagarde’s remarks.