The European Central Bank (ECB) has lowered benchmark rates by 25 basis points. The move was widely anticipated as the central bank adjusts to the changing economic environment. The consensus was driven by recent inflation data that drove a shift in opinion from market watchers.
The interest rates on the deposit facility, main refinancing operations, and the marginal lending facility will be decreased to 3.25%, 3.40%, and 3.65%, respectively.
The ECB said in its announcement that inflation is expected to rise in the coming months then to decline in 2025. Last month, inflation increased by 1.7%.
“Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.”
As with many other central banks, the ECB has a target 2% rate of inflation.
The ECB Governing Council stated that it stands “ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission.”
Currently, many observers expect another rate cut this coming December.
