ECB cut: key interest rates are falling, what does that mean for your money?

ECB cut: key interest rates are falling, what does that mean for your money?

On March 6, 2025, the Council of the European Central Bank (ECB) made a significant monetary policy decision: the key interest rates were reduced by 25 basis points each. This reduction will come into force on March 12, 2025 and will reduce the main refinancing operations and marginal lending facility interest rates to 2.65% and 2.90%, respectively. This also means that the base interest rate will be adjusted to 2.03% and the reference interest rate to 3.15%, as reported in the APA-OTS press release.

In addition, the ECB has reacted to the changed inflation outlook. Compared to the last meeting in September 2023, inflation has fallen by more than 2.5 percentage points, prompting the ECB to reduce monetary tightening. The key interest rates had previously remained at the same level for nine months. The interest rate for the deposit facility is now 3.75%, while the main refinancing operations and the marginal lending facility carry interest rates of 4.25% and 4.5%, as the Bundesbank explained in its report. These adjustments are part of a broader strategy to stabilize the economy.

Reduction of the PEPP program

Another important point is the ECB's announcement that it will reduce securities holdings from its pandemic emergency purchase program (PEPP) by 7.5 billion euros per month in the second half of the year. This action will be carried out in accordance with the familiar modalities of the Asset Purchase Program (APP). These steps clearly show that the ECB is prepared to respond appropriately to developments in inflation and the economic recovery and thus positively influence market conditions. For further details on interest rates and their development, the information is available from the APA OTS as well as that Bundesbank report of central importance.