European Central Bank cuts interest rates again as inflation slows

The European Central Bank (ECB) has cut its key interest rates as the markets expected, marking its second reduction this year following a move in June, Report informs via Euronews.

As anticipated, the ECB reduced its interest rates on Thursday afternoon during its September meeting.

New interest rates have been set at 3.65% for main refinancing operations, 3.90% for the marginal lending facility, and 3.50% for the deposit facility.

The interest rate on the main refinancing operations is the rate banks pay when they borrow money from the ECB for one week, while the rate on the deposit facility is what banks can use to make overnight deposits with the Eurosystem. The rate on the marginal lending facility offers overnight credit to banks from the Eurosystem.

"The Governing Council today decided to lower the deposit facility rate – the rate through which it steers the monetary policy stance – by 25 basis points. 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," an ECB statement said.

The latest ECB decision comes as inflation has eased. Eurozone consumer price growth slowed to 2.2% in August, according to flash estimates, marking the slowest increase since July 2021.

However, core inflation, as in the US, remains persistent at 2.8%. The sharp decline in annual inflation can also be attributed in part to a higher base last year.

Eurostat highlighted that "the slowdown was due to a sharp fall in energy costs as base effects came into play in August".

While inflation is cooling, growth indicators have remained concerning.

The eurozone’s gross domestic product (GDP) grew by just 0.2% in the second quarter of 2024, a downward revision from the earlier estimate of 0.3%. Across the bloc, performance varied significantly, with Germany, the region's largest economy, contracting by 0.1%.