ECB cuts key interest rates by 25 basis points

FRANKFURT -- The European Central Bank (ECB) decided on Thursday to cut its key interest rates by 25 basis points at its rate-setting meeting.

With this adjustment, the interest rates for the deposit facility, the main refinancing operation, and the marginal lending facility are now set at 3 percent, 3.15 percent and 3.4 percent respectively, the bank said in a statement.

The decision to lower interest rates was "based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission", the statement said.

The ECB confirmed that inflation is expected to reach its 2-percent target in the medium term "on a sustained basis", citing measures of underlying inflation.

In a notable shift, the ECB abandoned its previous rhetoric about keeping policy rates restrictive "as long as necessary", while reiterating its commitment to a data-dependent approach for determining future monetary policy.

"The Governing Council is determined to ensure that inflation stabilises sustainably at its 2 percent medium-term target," the bank said in its statement.

In its latest staff macroeconomic projections released on Thursday, the ECB forecast slower growth for the euro area economy compared to its September projections, as indicators point to a slowdown in the current quarter.

The ECB projects the economy will grow by 0.7 percent in 2024, 1.1 percent in 2025, and 1.4 percent in 2026. According to the projections, growth is expected to be driven by rising real incomes, which are anticipated to boost consumption and investment.

Inflation in the euro area is forecast at 2.4 percent in 2024, 2.1 percent in 2025, and 1.9 percent in 2026, aligning with the ECB's medium-term target.

Thursday's rate cut, the ECB's fourth rate reduction this year, follows an aggressive cycle of hikes that had pushed rates to record highs in September 2023. The latest cut was largely in line with market expectations.