The European Central Bank cut interest rates again on Thursday, accelerating the pace of lowering borrowing costs, as inflation in the euro zone cools more quickly than expected and the economy loses momentum.
The Frankfurt-based agency cut interest rates by a quarter of a percentage point, following a similar-sized cut at its previous meeting in September.
Thursday's action marks the first time the ECB has cut interest rates in two consecutive meetings since it began the process of lowering borrowing costs in response to falling inflation.
The ECB has cut interest rates three times since June from a high of 4%, leaving the benchmark deposit limit unchanged at 3.25% after the latest cut.
The decision came after a belated downward revision to the euro zone's September inflation data on Thursday.
EU data agency Eurostat said consumer prices in the region rose 1.7% year-on-year in September, 0.1 percentage points lower than initially expected.
Before the change, the September figures showed that euro zone inflation had fallen below the ECB's 2% target for the first time in three years.
Christine Lagarde, the bank's president, told a news conference that the ECB had not achieved “complete victory” on inflation, but the decline in price pressures was a positive sign.
“Have we broken the neck of inflation? Not yet. Are we in the process of breaking the neck of inflation? Yes,” Lagarde said.
～Slovenia Conference～
As part of a regular visit, the ECB's interest rate makers left the ECB's headquarters in Germany and met in Slovenia to assess the situation and make decisions.
The ECB raised interest rates higher and faster than before in response to a spike in inflation following the coronavirus pandemic and Russia's invasion of Ukraine.
But recent weaker-than-expected inflation data have given policymakers a growing sense that consumer prices are coming back under control.
The ECB said in a statement that the latest figures show that the cooling process in consumer prices is “on track”.
Inflation is expected to rise again in the coming months “until it falls below target within the next year,” the ECB said.
Lagarde said the information ECB rate-makers had received since their last meeting was “all in the same direction: down.”
Lagarde said this applies not only to inflation but also to indicators of business confidence.
Lagarde said risks to growth “remain tilted to the downside” between weak business morale and conflicts in Ukraine and the Middle East.
ING analyst Carsten Brzeski said the ECB had become more concerned about the “growth outlook for the eurozone” and the risk that “inflation would fall below target.”
– “Other data” –
Mark Wall, an analyst at Deutsche Bank Research, said Thursday's rate cut could be a “tipping point.”
“The ECB accelerated the easing cycle with successive interest rate cuts,” Wall said, adding that they normalized interest rates to release the brakes on the economy.
Lagarde declined to suggest what rate setters were thinking ahead of the ECB's next board meeting.
Lagarde said “we will receive further data” to consider by December, when the ECB releases its latest economic forecasts.
The ECB said policymakers “will continue to follow a meeting-by-meeting approach”, adding that they do not intend to “commit in advance to a particular interest rate path”.
In September, ECB policymakers stuck to one rate cut per quarter, giving the impression that December would be the right time for the next rate cut.
But Thursday's move suggests the ECB has moved “from cutting rates linked to new macro forecasts every quarter to considering them on a meeting-by-meeting basis,” Brzeski said.
“It seems like the aim is to get interest rates back to neutral levels as quickly as possible,” he said.
