The European Central Bank decreases interest rates within the eurozone.
In light of decreasing inflation, the European Central Bank (ECB) has opted to decrease its interest rates again. Building upon its policy reversal in June, the ECB has now made its first move: the interest rate at which banks can momentarily store excess funds with the ECB, known as the key deposit rate, has been decreased from 3.75 to 3.5 percent.
Due to this step, the DAX has shown a rise of 1.2 percent, reaching 18,550 points. The euro's value sits at $1.1020, slightly higher than previously, while the ten-year German bund yield rests at 2.110 percent.
Michael Heise, the chief economist for HQ Trust, voiced his opinion, stating, "Given the current circumstances, today's rate reduction is justified. Another cut by the end of the year seems likely. However, the future interest rate development in 2025 won't match the expectations of the markets as of now."
Jörg Asmussen, the CEO of the German Insurance Association, added his perspective. He valued the ECB's decision to continue with rate reductions, which fell in line with the present data, as well as sending a comforting message to the markets. "Nonetheless, the ECB ought to proceed with caution," Asmussen advised. He noted that while there are still high inflation rates within the services sector, this could lead to persistent inflation in the future. Meanwhile, it is essential for the ECB to recognize the appropriate time for further rate adjustments to ensure it does not miss its opportunity. In Asmussen's opinion, the ECB executed this balance exceptionally well through its 25 basis point reduction.
The decision by the ECB to decrease interest rates has been widely supported, with Michael Heise, the chief economist for HQ Trust, predicting another interest rate cut by the end of the year. The European Central Bank (ECB) will need to tread carefully, according to Jörg Asmussen, the CEO of the German Insurance Association, as high inflation rates within the services sector could lead to persistent inflation in the future.
