ECB cuts rates by 25 basis points

The European Central Bank (ECB) cut three key interest rates by 25 basis points this Thursday.

The fixed rate on the main refinancing operations decreased to 4.25%, the rate on the liquidity facility decreased to 4.5%, and the rate on the standing deposit agreement decreased to 3.75%.

In a statement issued this Thursday after its monetary policy meeting, the ECB board states that “based on the updated assessment of the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission, it is now appropriate to ease the level of restrictions.” monetary policy after holding interest rates constant for nine months.”

“Since the ECB board meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved significantly,” he states, adding that “core inflation has also slowed, adding to signs of easing pressure on prices as inflation expectations fall on all horizons.”

The statement stressed that “the ECB’s board is determined to ensure that inflation returns to its medium-term target of 2% in a timely manner” and that “to this end, it will maintain sufficiently restrictive key interest rates for as long as necessary.”

“The ECB Board will continue to follow a data-driven and meeting-by-meeting approach in determining the appropriate level and duration of tightening,” it said, adding that “its interest rate decisions will be based on an assessment of the inflation outlook.” , in light of newly available economic and financial data, underlying inflation dynamics, and the credibility of monetary policy transmission.”

According to him, the ECB board does not make any commitments in advance on a specific rate trajectory.

The ECB decided to cut the key rate amid rising inflation in the eurozone after it rose by two-tenths of a percentage point in May compared to April, to 2.6%; while core inflation, which excludes energy and fresh food prices as they are more volatile, rose by the same amount to 2.9%.

Additionally, contract wages in the eurozone rose 4.69% in the first quarter, while the region’s GDP outperformed the technical recession, rising 0.3% between January and March.

With its decision this Thursday, the ECB carried out the first interest rate cut since March 2016, eight years ago, although it then reduced the price of money from 0.05% to 0%. It subsequently cut the deposit rate by 0.10 points to -0.5% in September 2019.

In any case, this is the first decline since the start of the monetary tightening cycle due to rising inflation, with 10 consecutive increases between July 2022 and September 2023.

The next ECB monetary policy meeting will take place on July 18.