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The European Central Bank has cut interest rates by a quarter point to 3.25 per cent, amid signs that growth and inflation in the Eurozone are weakening.
Thursday’s move took Eurozone rates to their lowest point since May 2023 and followed a cut of the same size at the ECB’s meeting last month.
It was widely anticipated following the release of cooler-than-expected economic data.
“The incoming information on inflation shows that the disinflationary process is well on track,” the ECB said. “The inflation outlook is also affected by recent downside surprises in indicators of economic activity.”
German officials have warned Europe’s biggest economy is set to shrink for the second consecutive year.
Eurozone inflation fell to 1.7 per cent in the year to September, sinking below the central bank’s 2 per cent target for the first time in more than three years.
The central bank said Thursday’s cut was based on an “updated assessment of the inflation outlook”. That suggested price pressures will now be weaker than the ECB forecast last month, when it predicted inflation would rise towards the end of the year but dip back under 2 per cent in 2025.
The euro slightly rose on Thursday’s move, up 0.03 per cent at $1.09 after trading flat earlier in the day.
Traders in swaps markets price in another four or five quarter-point rate cuts by the middle of next year, including the near-certainty of a cut in December.
The ECB itself gave little guidance over the future path of its monetary policy on Thursday. It reiterated it was taking “a data-dependent and meeting-by-meeting approach” and was “not pre-committing to a particular rate path”.
The US Federal Reserve reduced its benchmark interest rate in September for the first time in more than four years, lowering borrowing costs by a half-point and signalling more reductions on the way.
The Bank of England is also expected to lower rates again in November, after cuts earlier this year.
The ECB started to cut rates in June and has now lowered borrowing costs three times. Thursday’s decision was made in Ljubljana, at the Slovenian central bank.
This is a developing story