Governor’s statement following the monetary policy meeting of the ECB’s Governing Council, with commentary on the current situation

The forecasts published yesterday by the ECB for the euro area indicate that weak economic growth will continue over the remainder of this year, with growth strengthening over the next two years. Inflation will gradually converge on its target rate of 2% over the same period. 

Based on the aforementioned forecasts and recent figures, which point to a decline in inflation, we have made the decision to again lower our key interest rates. The interest rate on the deposit facility, which is used to balance the monetary policy stance, will be lowered by 25 basis points to 3.5%. Our subsequent decisions will continue to depend on the current situation and data. This means that we are not committing to any pre-set path for interest rates, but will make separate decisions regarding the level of interest rates at each meeting. 

Here it should be noted that the next monetary policy meeting of the Governing Council of the ECB will be held in Slovenia at the invitation of Banka Slovenije.

At yesterday’s meeting, the decision was made to lower key interest rates again, by 25 basis points to 3.5%, following June’s cut. Future decisions will continue to ensure that the monetary policy stance is appropriately balanced to achieve a timely return to the medium-term inflation target of 2%. The next steps continue to depend on the actual situation, in particular on economic and financial data, developments in core inflation, and the effectiveness of our measures. This means that we are not committing to any pre-set path for interest rates, but will make separate decisions regarding the level of interest rates at each meeting.
Yesterday’s decisions are based on the latest macroeconomic forecasts, which in the context of an unchanged inflation outlook, foresee slightly slower economic growth than in the previous forecasts from June. Real GDP in the euro area will rise by 0.8% this year, as weak growth in economic activity from the second quarter will continue for the remainder of the year. In the context of strengthening real household income, growth in foreign demand and a less restrictive monetary policy, economic growth will rise to 1.3% in 2025 and 1.5% in 2026. Inflation will rise slightly but temporarily over the remainder of the year, and will average 2.5% for the entire year. Under the persistent influence of the restrictive effects of past monetary policy decisions and assuming slowing growth in labour costs, inflation will fall to 2.2% and 1.9% in 2025 and 2026, respectively. The rate at which inflation falls will depend largely on developments in core inflation, in particular service price inflation, and on developments in domestic cost pressures deriving from a tight labour market.

The yields on government bonds have fallen since mid-July, as market participants are anticipating a faster fall in key interest rates, particularly in the US, amid signs of slowing economic activity. Market inflation expectations have also fallen. Increased volatility is still present on the European and US money markets. The risk premiums that investors demand for the purchase of private sector bonds have risen slightly but remain relatively low, which supports the homogeneous functioning of monetary policy transmission.

At the same time, the changes to the operational framework for implementing monetary policy, which were announced in March, will enter into force next week. We thus, independent of cyclical factors and the inflation outlook, lowered other key interest rates (i.e. the interest rates on the marginal lending facility and main refinancing operations), in such a way that the spread between the rate on main refinancing operations and the deposit facility rate will be reduced from 50 basis points to 15 basis points, while the spread between the rate on the marginal lending facility and the rate on main refinancing operations will remain unchanged at 25 basis points. The interest rate on main refinancing operations will now be 3.65%, while the interest rate on the marginal lending facility will be 3.90%. 
Here it should be mentioned that the next monetary policy meeting of the Governing Council of the ECB will take place in Slovenia on 17 October in Brdo pri Kranju, at the invitation of Banka Slovenije, together with the usual press conference.