European Central Bank cuts key interest rates

On June 6, the European Central Bank (ECB) cut key interest rates by 25 basis points for the first time since 2019. This is stated in the regulator’s report.

The base rate on loans will be 4.25% from June 12, the deposit rate – 3.75%, and the rate on margin loans – 4.5%.

“Based on the updated assessment of inflation forecasts, the dynamics of core inflation and the transmission capacity of monetary policy, it is now appropriate to ease the degree of monetary policy restriction after nine months of holding rates steady,” the ECB said.

At the same time, the regulator noted that despite the progress made in recent quarters, domestic price pressures remain strong, with wage growth high and inflation likely to remain above target over the next year.

The ECB has raised its inflation forecast to 2.5% in 2024 from 2.3% previously expected, and to 2.2% in 2025 from 2%. In addition, the regulator raised its forecast for eurozone GDP growth in 2024 to 0.9% from 0.6% expected in March, but lowered it for 2025 to 1.4% from 1.5%.

In 2026, the eurozone’s GDP is expected to grow by 1.6%, and inflation is expected to reach 1.9%.

ECB President Christine Lagarde said that the decision to cut rates was supported by all but one member of the Governing Council. She also noted that the central bank wants to get more statistical data to make decisions on the future trajectory of interest rates. This will include information on inflation, wages, and other statistics.

As a reminder, the seasonally adjusted GDP of the euro area and the European Union in January-March 2024 grew by 0.3% compared to the previous quarter. In the fourth quarter of 2023, the eurozone economy fell by 0.1% q/q, while the EU economy remained stable, according to preliminary data from Eurostat.