ECB cuts key interest rate by 0.25 percentage points to 4.25 percent

die European Central Bank (ECB) It decides to reverse course and cut interest rates for the first time in almost five years. Monetary officers surround the head of the central bank Christine Lagarde As the ECB announced on Thursday in Frankfurt, it cut the key interest rate by 0.25 percentage points to 4.25 percent.

He also reduced the deposit rate charged by banks to 3.75 percent from the previous 4.00 percent for parking money at the central bank, which plays an important role in the financial market. The central bank last cut interest rates in September 2019. “The ECB Council does not commit in advance to a specific interest rate path,” the ECB explained, aiming for further study.

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The US Federal Reserve Bank still has its legs

With its downward move, the ECB follows central banks in Canada, Switzerland and Sweden, which have already cut interest rates. The influential US Federal Reserve Bank Central Reserve Inflation in the U.S. has recently proved too strong to keep its feet still.

Inflation has not yet been defeated in the Eurozone either. With inflation as recently as 2.6 per cent in May, rates above ten per cent as of autumn 2022 are now a long way off. The ECB’s ten interest rate hikes from summer 2022 contributed significantly to this. The ECB is targeting an inflation rate of 2.0 percent, which it considers the optimal level for the 20-nation bloc.

Economists at the central bank expect economic growth of 0.9 percent in the euro zone this year. In March they had just 0.6 percent. They expect gross domestic product (GDP) to grow by 1.4 (March forecast: 1.5) percent in 2025, and they expect another 1.6 percent increase in 2026.

The central bank’s economists produce economic and inflation forecasts for the euro area four times a year. These forecasts are available to monetary authorities for their discussions at the March, June, September and December interest rate meetings.

The European economy returned to growth with GDP growth of 0.3 percent in the first quarter and ended its recession. In its spring forecast, the EU Commission forecast growth of 0.8 percent for the countries of the monetary union this year, rising to 1.4 percent next year.

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