On Thursday, the European Central Bank lowered the interest rate by a quarter of a point. This move marks the second interest rate cut this year, after a significant cut in June, reports Belga.
As expected, the ECB decided to cut its key interest rate to 3.5 percent from 3.75 percent. Some of the main drivers of the rate cut include the bloc’s sluggish economic growth (GDP grew just 0.2 percent in the second quarter) and cooling inflation. In the eurozone, annual inflation fell to 2.2 percent in August, which is the lowest level since July 2021. It is now within reach of the ECB’s goal of two percent.
At the same time, the European Central Bank warns that more challenges lie ahead. While total inflation reached 2.2 percent, 0.4 percentage points below the July level, base inflation remained at 2.8 percent. Inflation in services even increased from 4.0 percent to 4.2 percent.
At a press conference, European Central Bank President Christine Lagarde stressed that the cautious, step-by-step approach to economic policy will not change.
“Our decisions on interest rates will be based on our assessment of the outlook for inflation in the light of incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We do not commit ourselves to a specific path of rates in advance,” she said.
Lagarde thus countered some warnings from actors such as ECB Executive Board member Isabel Schnabel and Bundesbank President Joachim Nage, against too rapid easing.
“We are determined to ensure that inflation returns to our medium-term target of two percent on time. We will keep reference rates restrictive enough for as long as it takes to achieve this goal,” she stressed.
The ECB’s decision comes just a week before the Federal Reserve is expected to begin its own cycle of interest rate cuts.
