ECB cuts interest rates by 25 basis points

The European Central Bank (ECB) on Thursday announced that it would cut key interest rates by 25 basis points.

The interest rate on the main refinancing operations, and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25 percent, 4.5 percent and 3.75 percent respectively, with effect from June 12, the central bank said in a statement.

"Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady."

Although its latest projections point to higher inflation for 2024 and 2025, the ECB said that inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly since September 2023.

According to the latest Eurosystem staff projections, inflation in the euro area in 2024 and 2025 has been revised up to 2.5 percent and 2.2 percent respectively.

Despite the rate cut move, the central bank said it is set to "keep policy rates sufficiently restrictive for as long as necessary" to achieve its aim of returning inflation to a 2 percent medium-term target.