ECB Lowers Interest Rates by 25 Basis Points, Beating Fed and UK Movers

The European Central Bank (ECB) has reduced its key interest rate by 25 basis points, bringing the main refinancing rate down to 3.75% from 4%. This is the first reduction since September 2019 and follows a series of rate hikes that began in July 2022. The decision comes amidst persistent inflationary pressures in the euro zone, although inflation has decreased by 2.5% since September, with the outlook for inflation showing signs of improvement.

The ECB's Governing Council indicated that it was appropriate to moderate the degree of monetary policy restriction after holding rates steady for nine months. The central bank also emphasized its commitment to remain data-dependent and not follow a predetermined rate path. Despite the rate cut, there are concerns about elevated wage growth and inflation potentially staying above target into next year. This move aligns the ECB ahead of the U.S. Federal Reserve in reducing borrowing costs and follows similar actions by central banks in smaller European economies such as Sweden, Switzerland, Hungary, and the Czech Republic.