ECB announces 2nd interest rate cut of this year

The European Central Bank (ECB) on Thursday announced it would cut key interest rates again, marking its second rate reduction this year following a move in June, with no indication of the future rate path, reported Xinhua.

In a press release, the ECB announced that it has decided to reduce the deposit facility rate by 25 basis points to 3.5 percent due to declining inflation. This decision follows the bank's June rate cut, which marked its first reduction in five years.

The market expects this move would further ease financing conditions for households and businesses in the eurozone.

"Based on the Governing Council's updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to take another step in moderating the degree of monetary policy restriction," the bank said.

According to the spread established by the ECB between the three key interest rates, the rates for the main refinancing operations and the marginal lending facility will be reduced to 3.65 percent and 3.90 percent, respectively, following the cut to the deposit facility rate.

The latest staff projections released by the central bank maintain the inflation forecasts unchanged from its June estimates. The ECB staff anticipate that inflation will average 2.5 percent in 2024, 2.2 percent in 2025, and 1.9 percent in 2026.

The core inflation projections have been revised upward for both 2024 and 2025.

Projections for economic growth in the euro area have been revised downward compared to June. The ECB staff forecast that the economy will grow by 0.8 percent in 2024, 1.3 percent in 2025, and 1.5 percent in 2026.

The ECB reiterated its commitment to reducing inflation in the euro area in a timely manner, stating, "It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim."

It marks the second time the ECB has cut key interest rates since June, when the rates were lowered by 25 basis points.