ECB cut its deposit rate by 25 basis points to 3.25% today, as widely anticipated. In its accompanying statement, ECB highlighted that the disinflationary process is “well on track,” with inflation expected to decline to target levels by next year. Recent “downside surprises” in economic activity have also impacted the inflation outlook.
Despite the improvement, domestic inflation remains elevated, driven by persistent wage growth. However, ECB expects labor cost pressures to ease gradually, with profits buffering their inflationary impact.
The central bank reaffirmed its commitment to maintaining rates at restrictive levels for as long as necessary, emphasizing a “data-dependent”, “meeting-by-meeting” approach to future policy decisions, without pre-committing to any specific rate path.
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