The European Central Bank has announced its first interest rate cut since 2019, reducing its key rates by a quarter-point.
The European Central Bank (ECB) has reduced its key interest rates for the first time in nearly five years. As inflation rates in the eurozone begin to ease, the ECB has taken the preemptive step ahead of the Federal Reserve in the United States, where rates are still elevated.
The ECB announced on Thursday that it would decrease its three principal interest rates by a quarter-point, affecting all 20 countries within the euro currency area. The benchmark deposit rate now stands at 3.75 percent, descending from the previous 4 percent—a rate that had been maintained since September and was the highest in the ECB's 26-year history.
ECB President Christine Lagarde, at a news conference in Frankfurt, stated, “The inflation outlook has improved markedly. It is now appropriate to moderate the degree of monetary policy restriction.” However, she refrained from providing clear guidance on the potential frequency or timing of future rate cuts. Despite a more cautious stance in the U.S. by the Federal Reserve, the Bank of England has signaled possible rate reductions as early as this summer.
Despite a climb to a record high by Europe’s benchmark stock index prior to the announcement, there was a subsequent pullback as the ECB signaled a cautious approach to additional rate cuts. The central bank highlighted ongoing price pressures and projected inflation to remain above the 2 percent target into the next year.
The ECB's stance remains data-dependent, with Lagarde emphasizing the need to "constantly confirm we are on this disinflation path" and clarifying that the bank is not in a "dialing back phase." Traders have adjusted their expectations, leaving the likelihood of further cuts in the latter part of the year uncertain.
