The move comes after a period in which the eurozone has seen sluggish economic growth and subdued inflation.
The European Central Bank (ECB) decided to cut interest rates by 0.25 percentage points at its meeting on September 12, marking the second consecutive cut this year. The interest rate in the Eurozone is currently at 3.5%.
The move comes after a period in which the eurozone has seen sluggish economic growth and subdued inflation.
Eurozone inflation slowed in August to a three-year low of 2.2%, down from 2.6% in July. Falling industrial output in Germany and Italy also raised concerns that the EU economy was slowing after a brief period of growth earlier this year.
In addition, the ECB also lowered its 2024 growth forecast to 0.8%, down slightly from its previous forecast of 0.9% due to “weaker demand in the region in the coming quarters”.
For many investors, the big question was not whether the ECB would cut interest rates at its September meeting, but whether it would signal what would happen next.
The ECB's governing body said in a statement that it "does not commit in advance to a specific path of interest rate adjustment", while reaffirming the need for a data-dependent approach and the timing of each meeting.
Major central banks have begun cutting interest rates in response to signs that inflation is cooling, and some analysts believe the ECB is likely to cut rates again at both of its remaining meetings this year.
Meanwhile, economists are divided on whether ECB policymakers will consider a pause when they meet again on October 17. The ECB is likely to cut interest rates by another 0.25% at its meeting on December 12.
The ECB meeting comes just days before the US Federal Reserve (FED) is also expected to begin easing monetary policy.
The ECB is likely to cut interest rates again in December and markets “should not expect three cuts between now and the end of the year,” said Daniel Lacalle, chief economist at Tressis.
“If the ECB actually cuts rates for a third time in December, I would be very concerned,” he added, explaining that such a move would mean a recession is closer to 70% or 80%.
The economist said he expected the ECB to be “cautious” about cutting interest rates, as Tressis estimates showed the chances of a recession in the eurozone were “extremely low”.
Reference FT; CNBC