ECB Cuts Interest Rates to Stimulate Eurozone Economy

The European Central Bank (ECB) has reduced its deposit rate to 3.50% and the main refinancing rate to 3.65% in an effort to stimulate lending and stabilize market interest rates. This decision aims to make borrowing more affordable for businesses, while yielding lower returns on savings.

The ECB's objective is to steer inflation back to its target of 2%, following a period of high inflation that peaked at over 10% last year. The bank will adopt a meeting-by-meeting approach to determine the appropriate level of interest rates, with the next evaluation scheduled for October.

Despite the easing inflation, which has fallen to 2.2%, core inflation remains elevated at 2.8%, prompting caution from the Bundesbank against rapid policy loosening. The ECB's rate cut is intended to balance economic stimulation with price stability, ensuring that neither high inflation nor deflation hampers economic activity.

This move follows a series of ten consecutive rate hikes aimed at combating inflation triggered by geopolitical tensions, such as the Russian invasion of Ukraine. While the lower interest rates are expected to boost investment and consumption, savers may face diminished returns on deposits and life insurance policies.