Monetary policy|The interest rate cuts will probably continue throughout the fall and next year.
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The European Central Bank cuts its key interest rates by 0.25 percentage points.
The key interest rate will be reduced from 3.75 percent to 3.50 percent.
The slowdown in inflation is the main reason for the interest rate cut.
Financial markets expect interest rate cuts to continue in the fall and next year.
European the central bank decided on Thursday to lower its key interest rates by 0.25 percentage points. The council that decides on monetary policy justifies its decision by the rise in consumer prices, i.e. the slowdown in inflation.
“Based on its updated assessment of the inflation outlook, the development of core inflation and the effective transmission of monetary policy, the ECB Council considered that it is now appropriate to further ease the restrictive nature of monetary policy.”
The decision means that the key interest rate, i.e. the commercial banks’ deposit rate, will be reduced from 3.75 percent to 3.50 percent.
Financial markets consider it very likely that the central bank will continue to cut interest rates throughout the fall and next year. This would be apt to strengthen the fragile economic growth of the euro area, because you could get a loan from the banks on more favorable terms.
The interest rate cut is transmitted to the economy in stages and typically reaches its full effect within a good year.
“Inflation is expected to accelerate again towards the end of the year, partly because the previous steep energy price drops are not included in the annual inflation figures. After that, inflation is expected to slow down and approach its target in the second half of next year,” states the council, which decides on monetary policy.
Central bank cut its key interest rates for the first time in nearly five years in June, when the inflation rate was 2.5 percent. In August, inflation slowed to 2.2 percent, which is very close to the central bank’s price stability target of two percent.
Securing price stability is important because it is the basis of sustainable economic growth. When inflation is slow, households and companies do not have to worry about the value of money decreasing.
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