Good news for borrowers: European Central Bank lowered interest rates

The European Central Bank announced a reduction in interest rates on December 12, 2024, at 3:39 PM. The ECB’s Frankfurt council decided to lower the three base interest rates by 25 basis points. Effective December 18th, the deposit facility interest rate will be 3.00%, the main refinancing rate will be 3.15% and the lending facility interest rate will be 3.40%.

This action follows a previous reduction of 25 basis points in October. The ECB’s loan interest is linked to bank lending interest, which is based on the Euribor, and the monthly payment is dependent on the interest rate. Lower interest rates result in reduced monthly payments for borrowers.

The ECB anticipates inflation will slow to 2.4% for 2024, 2.1% for 2025, and 1.9% for 2026, with a projected increase to 2.1% in 2027. Excluding energy and food prices, average annual inflation is expected to be 2.9% this year, 2.3% in 2025, and 1.9% in 2026 and 2027. Current inflation indicators suggest a stabilization near the ECB’s medium-term target of 2%.

Despite a growth acceleration in the third quarter of 2024, economic indicators point to a slowdown in the fourth quarter. Experts forecast economic growth of 0.7% in 2024, 1.1% in 2025, 1.4% in 2026, and 1.3% in 2027. This expected recovery relies primarily on increases in real incomes, which should drive household consumption, and a resurgence in business investments.

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