The European Central Bank cut interest rates for the first time since 2019 on Thursday as eurozone inflation gradually eases, but president Christine Lagarde said the path ahead was unclear and warned of a “bumpy road.”
The key deposit rate was lowered a quarter point to 3.75 percent, bringing it down from a record high.
Following an unprecedented streak of eurozone rate hikes beginning in mid-2022 to tame runaway energy and food costs, inflation has been slowly coming down towards the ECB’s two-percent target.
Thursday’s cut, the first since September 2019, came after the central bank kept rates on hold since October and will provide a much-needed boost for the beleaguered eurozone economy.
The move marks the ECB diverging from the US Federal Reserve, which has also hiked rates aggressively but is not expected to start cutting for months due to stronger-than-expected data.
All eyes are on what happens next, but the path ahead has been complicated by recent stronger-than-expected inflation and growth data, which has lowered the chances of a rapid easing cycle.
The central bank hiked its inflation projections for this year and next, saying it no longer expects the indicator to hit the two-percent target in 2025, as previously anticipated, but rather to come in at 2.2 percent.
It also raised its growth forecast for 2024, although lowered it slightly for next year.
It came after data released last week showed inflation in the 20 countries that use the euro rose in May, and faster than expected, to 2.6 percent on year.
The eurozone economy also expanded faster than expected in the first quarter as it emerged from recession.
Sam Reeves, AFP