The ECB cut interest rates by 25 basis points as scheduled and refused to promise a specific interest rate path in advance

The Zhitong Finance App learned that the ECB has implemented interest rate cuts that have been hinted at for several months. Interest rates have fallen from record highs, but there is no indication that there may be more interest rate cuts in the future.

On Thursday, ECB officials, led by President Lagarde, cut the key deposit interest rate by 25 basis points to 3.75%, in line with expectations. After keeping interest rates at 4% for 9 consecutive months, they said the inflation outlook had improved “markedly”, but they also raised their expectations for prices.

The ECB said in a statement: “The Governing Council will continue to rely on data and a meeting-by-meeting approach to determine the appropriate level and duration of restrictions. The management committee did not pre-promise a specific interest rate path.”

This decision means that the ECB is beginning to reverse the unprecedented rate hike it has taken to quell the worst inflation spike in the Eurozone's history. The move will also put the ECB ahead of the Federal Reserve and the Bank of England in easing monetary policy, and help revive the Eurozone economy after two years of stagnation and mild recession.

Despite Lagarde's announcement last month that inflation is “under control,” a recent series of data suggests that price pressure continues. This prompted investors and economists to cut their expectations for interest rate cuts in 2024 to two to three times.

After the interest rate decision was announced, the money market continued to bet that the next rate cut might be in September. The euro rose against the dollar, and 10-year German bond yields climbed.

The latest quarterly outlook released in conjunction with the ECB's policy statement predicts an average inflation rate of 2.2% in 2025, and this year's economic growth forecast was raised to 0.9% from 0.6% previously.

Prior to Thursday's meeting, policymakers left little room for doubt about their intention to cut interest rates — even after they hoped to support some of their economic data moving in the wrong direction.

For example, inflation accelerated faster than expected in May, and an indicator measuring potential trends also rose slightly higher than expected. Elsewhere, wage growth did not slow in the first quarter, which indicates that service prices will continue to rise. Another key salary indicator will be released on Friday, and the market generally expects the data to show a similar trend.

Meanwhile, the economy rebounded more strongly than expected from the slump. In addition to the excellent economic growth performance, the unemployment rate fell to a record low in April, and the struggling manufacturing industry finally showed signs of recovery.

ECB chief economist Philip Lane said that inflation and wage growth will “rebound” this year, although the overall trend is declining. He said the policy must remain restricted throughout 2024.

Although the Federal Reserve and the Bank of England are struggling to cope with more stubborn price pressure, the ECB has now cut interest rates before the Federal Reserve and the Bank of England, but peers in other parts of the world have actually begun to relax monetary policy, and the market expects the Federal Reserve and the Bank of England to cut interest rates in the next few months.

On Wednesday, the Bank of Canada took the lead in lowering the benchmark interest rate, making it the first central bank in the G7 to lower the benchmark interest rate since the world's biggest inflationary shock began in the 70s of the last century, and indicated that there may be more measures. In Europe, the Bank of Sweden and the Swiss central bank have also relaxed their monetary policies.