The European Central Bank (ECB) has once again lowered its key interest rate from 4.25% to 4%. This is the second rate cut in recent months and could accelerate the growth of the money supply.
Another Rate Cut
The ECB has regularly been reducing its key interest rate. This time, the rate was lowered from 4.25% to 4%. The markets expect the Federal Reserve (Fed) to follow suit next week. The Fed chairman hinted at this during his Jackson Hole speech.
Inflation Projections
ECB President Christine Lagarde stated that the bank expects an average inflation rate of 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. By comparison, inflation in the eurozone over the last three years was nearly 17%, and in the entire EU, it was about 20%.
Economic Situation in Europe
Despite some easing in inflation, a recession is not currently anticipated. However, high interest rates are significantly impacting public finances. For example, France borrowed money at an average rate of 3.15% in 2023, much higher than in previous years. France's government debt exceeds 3.1 trillion euros, or 110% of GDP. The cost of servicing this debt is around 70 billion euros per year.
The continued reduction of interest rates by the ECB reflects the current economic situation in Europe. It is expected that the rate cuts will affect the money supply and inflation in the coming years.
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