Calming Inflationary Momentum Allows Key Interest Rates to be Lowered

The European Central Bank began a series of interest rate cuts in June 2024. In the fall, the Federal Reserve Bank followed suit and lowered its target rate by 0.5 percentage points. Both central banks continued to reduce the securities acquired in the past years. In the euro area, the rounds of interest rate cuts spilled over to the money market, with deposit and lending rates in the Austrian banking industry following suit. The effects of the recession were clearly felt on the financial market. Demand for credit remained weak throughout the year, with residential construction loans in particular suffering from high construction costs, high real estate prices and regulatory restrictions. The volume of short-term corporate loans fell as inventories were reduced, and additional demand for long-term loans remained limited due to weak investment activity. Private households increased their savings activities and invested mainly in term deposits and fixed-interest securities. The Financial Market Stability Committee recommended the introduction of a sectoral systemic risk buffer for commercial real estate lending. A sharp increase in write-downs on fixed assets in the banking industry caused the operating result to shrink slightly. Price gains on the Vienna Stock Exchange were unable to keep pace with the growth in nominal GDP, implying that the market capitalisation lost ground to 26.1 percent of GDP. The real appreciation of the effective exchange rate index continued in 2024.