Central Bank lowers main interest rate for the first time since 2016.
The European Central Bank (ECB) in Frankfurt enacts the anticipated interest rate decline for the first time in eight years, lowering the main interest rate. It was foreshadowed and had already been considered by several investors in the stock market.
The ECB settles on the course change and reduces the interest rate for the first time since nearly five years. The monetary officials surrounding ECB President Christine Lagarde lessened the key interest rate by 0.25 percentage points to 4.25 percent, according to the ECB's announcement in Frankfurt. The interest rate that banks receive for keeping funds with the central bank was decreased to 3.75 percent from previously 4.00 percent. The central bank had last lowered interest rates in September 2019 when the deposit rate was lowered from 0.40 to 0.50 percent. "The ECB Council does not predetermine a specific interest rate path," the ECB states regarding the upcoming course.
Following the central banks in Canada, Switzerland, and Sweden, which have already reduced interest rates, the ECB is now following the same pattern. The powerful US central bank, the Federal Reserve, has not yet made such a move, as inflation in the United States has recently been unusually high.
Inflation in the eurozone remains unstopped. With an inflation rate of 2.6 percent in May, rates surpassing ten percent, as in the autumn of 2022, are still distant. This was significantly influenced by ten interest rate increases by the ECB since the summer of 2022. The ECB aims for an inflation rate of 2.0 percent, which it deems the optimal level for the 20-country community.
ECB Chief Economist Philip Lane had recently clearly indicated that the central bank might soften its strict interest rate policy slightly. At the same time, however, he had also made it clear that the fight against inflation was not yet concluded with a rate decrease.
In the latest Reuters survey of 82 economists, all had anticipated a 0.25 percentage point rate reduction. However, they also expected a cautious approach from the eurozone's monetary authorities in the following months. This is justified by the fact that wage growth in the first quarter was surprisingly potent and inflation in services is still high. Market participants had predicted a maximum of two additional interest rate cuts this year.
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The ECB President Christine Lagarde led the ECB in Frankfurt, initiating the long-awaited interest rate turnaround, reducing the main interest rate for the first time in eight years. Several investors in the stock market had already anticipated and considered this interest rate decline.
The ECB, following the lead of central banks in Canada, Switzerland, and Sweden, reduced its interest rate by 0.25 percentage points, bringing it to 4.25%. This decision was a part of the ECB's interest rate policy, aimed at addressing the persistently high inflation in the eurozone.
Despite the ECB's interest rate turnaround in Frankfurt am Main, the influential Federal Reserve in the United States has yet to follow suit due to high inflation in the country.
