ECB cuts interest rates by 25 basis points as inflation fades

The European Central Bank (ECB) decided on Thursday to lower three key interest rates by 25 basis points, its third rates cut this year, saying that disinflationary process is "well on track," reported Xinhua.

The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will be decreased to 3.25 percent, 3.4 percent and 3.65 percent respectively, with effect from Oct. 23.

The ECB does not expect recession in the eurozone despite economic difficulties in some states, the bank's President Christine Lagarde said at a press conference after the ECB Governing Council meeting in Slovenia.

The decision to cut interest rates is based on the bank's updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, she said. "The incoming information on inflation shows that the disinflationary process is well on track."

Despite predicted inflation rise in the coming months, Lagarde said the ECB is determined to ensure that inflation return to the 2-percent medium term target in the course of next year. "We will keep policy rates sufficiently restricted for as long as necessary to achieve this aim."

The eurozone's annual inflation rate is projected to drop to 1.8 percent in September, down from 2.2 percent in August, according to Eurostat. This marks the first time in three years that inflation has fallen below the ECB's target.

Lagarde did not specify when further rate cuts might be expected, noting that decisions are data-dependent.

The next ECB Governing Council monetary policy meeting is scheduled for Dec. 12 in Frankfurt.

The ECB cut key interest rates for the first time in five years by 25 basis points in June and again in September.