The European Central Bank confirmed a widely expected reduction in interest rates at its meeting on Thursday, despite ongoing inflationary pressures in the 20-nation eurozone. This move brings the central bank’s key rate to 3.75%, down from a record 4% where it has been since September 2023. In updated macroeconomic projections, which investors will scrutinize, ECB staff previously raised their annual average headline inflation outlook for 2024 to 2.5% from 2.3%. Additionally, staff increased their 2025 forecast to 2.2% from 2%, while the 2026 projection remained at 1.9%.
According to the ECB governing council, "Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady.”
The markets had completely factored in the 25 basis point decrease at the June meeting. This is the first cut since September 2019, when the deposit facility was in negative territory.
Currently, markets have only fully factored in one more reduction this year, but economists surveyed by Reuters last week predict that two more cuts will take place over the period.
Though the ECB began hiking interest rates later, the June cut puts it ahead of the U.S. Federal Reserve on its march lower, as the world’s largest central bank remains stymied by the rate of U.S. inflation.
Canada on Wednesday became the first G7 nation to cut interest rates in the current cycle, while Sweden’s and Switzerland’s central banks already announced their own rate reductions this year.
cnbc.com
