The European Central Bank (ECB) has cut borrowing costs for the third time this year, lowering its benchmark interest rate from 3.5% to 3.25%.
The ECB has three main interest rates. The interest rate on the deposit facility has been reduced to 3.25%, the interest rate on the primary loan facility has been reduced to 3.40% and the interest rate on the marginal loan facility has been reduced to 3.65%. Both rates were lowered by 25 basis points.
The decision to cut interest rates by a quarter of a point came after official data released on Thursday showed that year-on-year inflation in the euro zone had slowed to 1.7% in September.
This is the first time in more than three years that the single currency bloc's inflation rate has fallen below the ECB's target of 2%.
What caused inflation to cool?
The slowdown in inflation in September was due to changes in energy costs, which fell by 6.1% compared to the same month last year.
“Victory against inflation is in sight,” French central bank governor and ECB rate-setter François Villeroy de Galhau said last week.
“A rate cut is very likely,” he said ahead of Thursday's ECB board meeting, adding: “This will not be the last time.”
Inflation peaked at 10.6% in October 2022 as consumer prices soared in the wake of the coronavirus pandemic and Russia's invasion of Ukraine. This prompted the ECB to aggressively raise interest rates. However, central bank policymakers have already cut interest rates twice this year in response to easing conditions.
The Frankfurt-based ECB has now shifted its focus to addressing weak economic growth in the 20-nation euro zone.
Growth is expected to slow to 0.2% in the third quarter and 0.8% for all of 2024, according to the agency's own forecasts released last month.
Editor's note: This article was updated on October 18, 2024 to reflect the ECB's three main interest rates.
nm/wmr (Reuters, AFP)
