ECB Cuts Interest Rates By 25 Bps As Lagarde Airs Concern On Eurozone Growth

(RTTNews) - The European Central Bank cut key interest rates by 25 basis points, as expected on Thursday, as policymakers assessed that the disinflation process is on track, and but they are increasingly concerned over the health of the euro area economy following some soft data released since the September policy session. The Governing Council, led by ECB President Christine Lagarde, lowered the deposit facility rate by a quarter basis point to 3.25 percent following the rate-setting session held in Ljubljana, the capital of Slovenia.

"…the decision to lower the deposit facility rate - the rate through which the Governing Council steers the monetary policy stance - is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission," the ECB said.

The central bank for the single bloc lowered rates by the same volume in September and was then widely expected to opt for a cut only in December.

However, economic data since the September session made expectations for an imminent reduction stronger. While headline inflation has slowed much, the core figure has not eased as fast as the bank would like.

Further, an increasing number of indicators such as those from the purchasing managers' survey and bank lending data have started to signal a weakening Eurozone economy, something that the central bank acknowledged in the policy statement. ECB policymakers have also started to air doubts over the resilience of the labor market.

Lagarde also expressed some concern over the recent economic data as she responded to questions from reporters during the post-decision press conference. The latest decision to lower rates was unanimous, she said.

The ECB chief clearly refused to pre-commit an easing in December, instead stressed on the data-dependency approach. Answering a question, she said the ECB has not yet completely "broken the neck of inflation". The bank is still looking at a soft landing, Lagarde said.

Policymakers will be equipped with the latest set of ECB staff macroeconomic projections in December.

The ECB left the forward guidance on interest rates unchanged this time. Policy rates will be kept sufficiently restrictive for as long as necessary to bring euro area inflation back to the 2 percent target, the ECB said.

"The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction," the bank said.

"The Governing Council is not pre-committing to a particular rate path," the bank reiterated.

ING economist Carsten Brzeski said the decision to cut rates only five weeks after the last cut and with only very few pieces of economic data since then, suggests that the ECB must have become much more concerned about the eurozone's growth outlook and the risk of inflation undershooting the target.

The latest rate cut can be seen as a signal that the ECB is now in a hurry to bring interest rates down to a more neutral level, the economist added.

Capital Economics economist Jack Allen-Reynolds said the data released over the next weeks are likely to support 25 basis points rate cuts at each of the next few meetings, at the very least.

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