the ECB announces a drop of a quarter of a point, beginning of splendor for real estate?

Serving as a reference, the rate on deposits of 4%, its highest level reached last September, has been reduced to 3.75%, according to a press release from the institution.

The Russian invasion of Ukraine in February 2022 led to high inflation in the eurozone, which prompted the ECB to begin an unprecedented rate hike cycle, reaching historic highs. The notable decrease in inflation, 2.6% in May, ended up convincing the Governing Council of the ECB to ease monetary tightening.

However, this improvement has not been fully consolidated. Inflation forecasts have been revised upwards compared to those of March, with estimates of 2.5% in 2024 and 2.2% in 2025, finally 1.9% in 2026.

A boost for real estate

The last rate cut by the ECB dates back almost five years, in September 2019. The question is whether the timid move made on Thursday creates a psychological shock that is a precursor to a recovery in activity, all without seeing inflation begin to rise.

The most visible impact should concern the real estate market, where loans, especially those with variable rates, have been squeezed by the sudden increase in rates. This caused a collapse in the volume of new loans to families trying to buy housing, without having a significant effect on housing prices.

The prospects for lower rates can therefore “relieve the decline of the real estate market, whose recovery can support growth a little”, notes Éric Dor, director of economic studies at the IESEG School of Management.

As for bank loans to companies, at the lowest during the phase of monetary tightening, the rebound should come mainly from better economic prospects and competitiveness, which has deteriorated in the euro zone due to the prices of the high energy.

For credit rates to sink sharply to the benefit of households and businesses, the ECB would need to “clarify that it is committed to a series of successive reductions”, says Éric Dor.

The Fed overreached

However, in an economic context still full of uncertainties, the ECB did not give any indication on Thursday about the continuation of the new cycle of rate cuts, continuing to affirm that this will depend on the economic data available meeting after meeting.

The Frankfurt institution, however, on Thursday showed courtesy, for the first time in its history, to its big sister in America, the Federal Reserve (Fed). The latter will have to wait to relax their policy because the dynamic economy of the United States is accompanied by a more stubborn price curve.

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