The European Central Bank (ECB) is expected to announce its interest rate decision on Thursday, with a rate cut widely expected as inflation declines in the euro zone.
The decision is expected to be announced on Thursday afternoon following an external meeting in Slovenia.
Currently, the main deposit interest rate that banks receive in return for funds deposited with the ECB is 3.5%. Financial experts are predicting a further 0.25 percentage point cut. This is because while the inflation rate is falling, the euro area economy is sluggish.
ECB President Christine Lagarde recently suggested in a speech to the European Parliament that a rate cut could occur at the central bank's October meeting.
Success in the fight against inflation
Eurozone inflation fell to 1.8% in September from 2.2% in August.
This is the first time since mid-2021 that inflation has fallen below the ECB's medium-term target of 2% in the common currency area. But economists say the ECB is still far from reaching its goal. This is because core inflation, which excludes volatile energy and food prices, remains high in the euro area. In September, the decline was only 0.1 percentage point at 2.7%.
The ECB began shifting interest rates in June, cutting interest rates by 0.25 percentage points for the first time since the recent period of high inflation. Further production cuts were implemented in September.
The ECB needs to strike a balance in its monetary policy. High interest rates make loans more expensive, which can slow the economy and suppress inflation. However, high-cost loans are a burden for companies and individuals who borrow money.
If the ECB cuts rates too quickly, there is a risk that inflation will rise again.
