Good news for borrowers: EECB newly reduced the interestrate

The Council of the European Central Bank (ECB) on Thursday decided to reduce the interest rate of the deposit program by 25 basis points, or

0.25 interest points. European central bank (ECB) Photo: Shutterstock

The Council of the European Central Bank (ECB) decided on Thursday to decide to reduce the interest rate on the deposit program by

25 basis points, or 0.25 percentage points.

So that the Council decided to set the interest rate for the deposit program at the level of 2.75%, main interest rate on refinancing operations at 2.9% and interest rate on the credit program at 3.15%, beginning from 5 February, said the EECB in a communication.

The decision to reduce the deposit rate is based first on an updated assessment of the inflation outlook, the baseline dynamics of inflation and the effectiveness of the effectiveness of the transmission of monetary policy. The deposit rate is the instrument with which the Council regulates the rate of monetary policy.

The ECB’s estimate of the slowdown inflation is occurring in line with expectations, and inflationary events are generally in line with the forecasts of central bank officials. Inflation is expected to return to the mid-term target level of two percent. According to the central bank, most baseline inflation indicators indicate that inflation will steadily stabilize around the target level.

Inflation in the eurozone remainshigh primarily because wages and prices in some sectors are still adapting – with significant lags – to the previous sharp acceleration of inflation. On the other side, the growth of wages, as was expected, is slowed, and profits partially mitigate its impact on inflation.

Thanks to the recent reduction in interest rates implemented by the Council, businesses and households are gradually becoming cheaper to borrow new money. But the conditions for financing remain tight, not least because monetary policies remain restrictive, and the effects of the increase in interest rates in the past continue to affect the volume of non-performing loans.

For example, some loans which are coming to the end, are being issued at higher interest rates. Tem nevertheless, the growth of the economy is still restrained by unfavorable factors, but increasing real income and gradual weakening of restrictive monetary policies should sometimes support the growth of demand, the ECB said.

The ECB also announcedthatthevolumeofportfoliosoftheasset purchase program(APP)andpandemicexceptionaleconomicprogram(PEPP)willreduceatamoderateandpredictablepace,because theEurosystemwill no longerreinvestthemajorpaymentsofpricedbondsthatmature.

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