The European Central Bank on Thursday confirmed a widely anticipated reduction in interest rates at its meeting in Frankfurt, Germany, despite lingering inflationary pressures in the 20-nation euro zone.
It takes the central bank’s key rate to 3.75%, down from a record 4% where it has been since September 2023.
″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 ECB Governing Council said in a statement.
In updated macroeconomic projections that will be closely analyzed by investors, ECB staff raised their annual average headline inflation outlook for 2024 to 2.5% from 2.3% previously.
It likewise lifted its 2025 forecast to 2.2% from 2%. The 2026 projection remained at 1.9%.
Money markets had fully priced in the 25 basis point move lower at the June gathering. It is the first cut since September 2019, when the deposit facility was in negative territory.
Markets have only fully priced one further reduction this year, but economists polled by Reuters last week forecast two more cuts taking place over the period.
Though the ECB began hiking interest rates later, a June cut would put 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. The president of the European Central Bank, Christine Lagarde, nevertheless said in her last news conference that ECB officials are “data-dependent, not Fed-dependent.”
Canada on Wednesday became the first G7 nation to cut interest rates in the current cycle, while Sweden and Switzerland’s central banks already announced their own rate reductions this year.
