The European Central Bank on Thursday held interest rate cuts, taking a step earlier than the US Federal Reserve and the Bank of England to reduce the cost of lending in response to the decline in inflation after years of rate hikes, writes UNN with reference to CNN.
Details
This is the first ECB rate cut in almost five years, which reduced the base rate in 20 euro area countries from a historically high 4% to 3.75%. The European Central Bank also said that while the fight against inflation is not yet complete, it currently has no plans to cut rates further.
"Despite progress in recent quarters, domestic price pressures remain strong as wage growth increases and inflation is likely to remain above target next year," the ECB said in a statement.
By the end of 2021, major central banks had begun raising the cost of lending in response to high inflation, which was partly caused by the end of the pandemic and the energy crisis due to the Russian invasion of Ukraine. However, since then, price growth in the euro area, the US and the UK has slowed, bringing the annual inflation rate closer to 2%, which is the target for these banks.
The European Central Bank followed the example of the Bank of Canada, which cut interest rates on Wednesday, becoming the first G7 central bank to take such a step in recent years. The central banks of Switzerland and Sweden also cut interest rates this year.
ECB President Christine Lagarde plans to hold a press conference later to discuss these changes. Analysts are skeptical about the possibility of further rate cuts at the next ECB meeting in July, given that inflation in the euro area in May was higher than expected, rising to 2.6% from 2.4% in the previous month. Core inflation growth also accelerated due to higher wages.
The ECB raised its inflation forecast for this year to 2.5% from 2.3%, promising to keep interest rates at a sufficiently restrictive level to reach the 2% target. It is also indicated that the European economy is showing signs of recovery, which may lead to a further increase in inflation.
Recall
The European Central Bank has warnedthat geopolitical tensions and a busy election program around the world threaten financial stability.