News - European Central Bank cuts key interest rates

By Ted Maas

European Central Bank cuts key interest rates

Laws and regulations
World Economy

Despite economic warning signals, the ECB is lowering its key interest rate. Here's how the central bank explains its decision.

The European Central Bank is letting off the pressure and lowering the key interest rate. The ECB announced this in a press release today. Overall, the central bank is lowering the deposit rate, which determines lending and savings rates, by 25 basis points to 3.75 percent. Interest rates for the main refinancing operations and the marginal lending facility will also be cut by 0.25 percent.

So the Frankfurt am Main-based monetary watchdog is taking a different tack. Over the past two and a half years, the ECB has raised the key interest rate in several steps to curb high inflation in the euro zone.

The move had been expected by many analysts and experts and also received public support from central bankers. ECB chief Christine Lagarde considered an interest rate cut in advance "most probably".

The press release now states, "After nine months of maintaining the same interest rates, now is a good time to ease slightly the tight monetary policy measures. This decision is based on an assessment of inflation expectations, underlying inflation trends and the effectiveness of our previous policy."

In recent months, inflation came close to the European Central Bank's (ECB) target of 2 percent. But in May, inflation rose slightly from 2.4 percent to 2.6 percent. That's why some critics think the interest rate cut is premature.

For equity markets, the decision to cut interest rates is less important than whether the ECB plans to cut rates further in the future. Lagarde is expected to say something about this at the press conference following the interest rate decision (14:45 CET).

Bitcoin is currently trading at USD 71,390 and has risen slightly by 0.8 percent on the day since the interest rate cut announcement.

According to a Reuters survey, nearly two-thirds of US economists expect an interest rate cut starting in September.

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