ECB cuts interest rates by quarter point to 3.5%

The European Central Bank (ECB) cut interest rates by another 0.25 percentage points on Thursday.

The Frankfurt-based financial institution reduced its key deposit rate to 3.5%, as expected, providing further relief to eurozone households and businesses. 

"Recent inflation data have come in broadly as expected," the ECB said in a statement.

But it warned the path ahead would not be smooth, saying that "inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates."

After raising interest rates at a record pace since mid-2022 to combat rising consumer prices, the ECB has begun to ease pressure as inflation rates have fallen.

The bank already cut its deposit rate to 3.75% in June and then paused in July before taking a summer break in August.

Growth and inflation in the eurozone

The rate-setting council, led by ECB President Christine Lagarde, has had to balance concerns about a disappointing growth outlook with the need to ensure that inflation reaches and stays at the bank's 2% target.

Inflation in the 20-nation eurozone fell to 2.2% in August from 2.6% in July, after peaking at 10.6% in October 2022.

Consumer prices spiked after Russia cut off most natural gas supplies to Europe following its full-scale invasion of Ukraine in February 2022, pushing up utility bills.

Recovery from the COVID pandemic also led to supply shortages of parts and raw materials, further boosting inflation, which then spread to services. The ECB and the US Federal Reserve responded with rapid interest rate hikes.

The Fed is also expected to make a first cut in its benchmark rate from a 23-year high of 5.25% to 5.5% at its September 17-18 meeting.

European stocks on the rise

Meanwhile, European shares opened more than 1% higher on Thursday, boosted by strong performances in technology stocks as investors awaited the interest rate decision.

The pan-European STOXX 600 index was up 1.2% at 514.17 points by 0708 GMT, on track for its best day in almost a month if the gains hold.

Technology shares led a rally in their Asian counterparts, rising 2.6%.

Basic resources gained 2% after base metal prices rose, buoyed by hopes of a U.S. interest rate cut next week.

dh, jsi/rt (AP, AFP, Reuters)