European Central Bank cuts interest rates by a quarter point in fourth trim of the year

The European Central Bank on Thursday announced its fourth interest rate cut of 2024, confirming expectations for a quarter-percentage-point move and lowering its inflation forecast for this and next year.

It takes the deposit facility — the ECB’s key rate — to 3%. The deposit facility had been held at 4% since Sept. 2023, prior to the first cut of the current easing cycle in June 2024.

“The disinflation process is well on track,” the central bank said in a statement on Thursday.

The ECB also removed its repeated message that it needs to “keep policy rates sufficiently restrictive for as long as necessary,” which was being closely-watched by traders as a sign of a dovish tilt.

Quarterly staff macroeconomic projections meanwhile lowered the ECB’s inflation forecast for 2024 to 2.4% from 2.5%. The inflation outlook for 2025 was also taken down to 2.1% from 2.2%.

The institution now sees weaker growth this and next year. Staff projections put the euro zone economy growing at 0.7% in 2024, from a prior forecast of 0.8%. Growth in 2025 is seen at 1.1%, down from a previous projection of 1.3%.

Risks to economic growth “remain tilted to the downside,” ECB President Christine Lagarde said in a press conference Thursday, citing the potential for “greater friction in global trade” and lower consumer and business confidence. Europe is grappling with the potential for sweeping tariffs proposed by U.S. President-elect Donald Trump, which economists say has introduced high uncertainty into 2025 outlooks.

Expectations had faded that a larger 50-basis-point trim could be in store, even after headline inflation settled near the ECB’s 2% target, as growth indicators showed continued signs of deterioration in the euro zone’s big manufacturing economies, including in Germany.

Money markets instead priced in a fourth 25 basis point cut, amid concerns over the recent uptick in negotiated wage growth and persistence in service sector inflation.

Lagarde nonetheless said during her press conference that some members of the Governing Council had proposed a 50-basis-point cut, and that this had been discussed.

“The overall agreement to which everybody rallied was that 25 basis points was the right decision,” she told CNBC’s Annette Weisbach. Key factors influencing that decision were that inflation projections have converged toward 2% for six projections in a row; wage pressures have decreased; but that victory is not yet fully achieved over inflation.

“We still have service inflation that is running high… we would really want to see a change in the composition of inflation to feel totally confident that we are really almost at target,” Lagarde said.