The ECB is reacting to the decreasing risk of inflation with the third key interest rate cut since the summer. The step is also intended to stimulate the economy.
The European Central Bank (ECB) has cut its three key interest rates by a further 0.25 percentage points. The central key interest rate at which commercial banks can borrow money from the ECB is now 3.25 percent, as the central bank announced on Thursday. It is the third rate cut since June and the second in a row.
Reducing the key interest rate should lead to economic growth
The main refinancing rate at which commercial banks can borrow money from the ECB is now 3.40 percent, the interest rate for short-term procurement of money, the top refinancing rate, is 3.65 percent.
Inflation within the euro zone had recently weakened and fell to 1.7 percent in September for the first time in three years. The ECB said the “disinflation process” was progressing well. The central bankers expected inflation to rise in the coming months – but inflation should then fall to the target value of two percent over the next year.
The economy in the euro area has recently developed weaker than expected, the ECB explained. Falling interest rates can improve financing conditions and thus lead to more economic growth.
It is the third interest rate cut by central bankers this year. The first interest rate move took place in June, they kept interest rates constant in July, and after the summer break there was the next cut in September. By October 2023, the ECB had gradually increased key interest rates in response to high inflation.
Source: Stern
