The European Central Bank (ECB) reduced its key interest rate by 0.25% to 3.75%, moving ahead of the US Federal Reserve as global central banks lean towards lowering borrowing costs, Associated Press reports.
ECB President Christine Lagarde announced the cut due to easing inflation, though she didn’t specify future rate paths, maintaining a cautious stance on further cuts. Despite inflation dropping to 2.6% in May, it remains above the ECB’s 2% target, analysts predict the ECB may pause rate changes at its next meeting. The cut signals a shift from the previous focus on combating inflation, which the ECB and other central banks addressed by raising rates. High rates had stifled growth, particularly in the eurozone. The ECB’s decision marks a broader trend of rate cuts seen in smaller economies like Canada and Sweden. This move could reduce mortgage and credit costs, potentially boosting economic growth and stock prices.
The ECB’s prior high rates had ended a long rally in eurozone home prices and dampened construction. Europe’s inflation surge, primarily driven by Russia’s natural gas supply cuts and post-pandemic supply chain issues, has subsided, with energy prices stabilizing.
