ECB Lowers Key Interest Rates Amid Inflation Control Efforts

The European Central Bank (ECB) has decided to cut its key interest rates by 0.25 percentage points in a bid to balance inflation and economic growth. The deposit rate now stands at 3.5%, while the main refinancing rate is reduced to 3.65%, and the marginal lending facility rate drops to 3.90%.

This decision aims to bring inflation closer to the ECB's target of 2%, a significant reduction from previous highs driven by economic recovery post-pandemic. Although general inflation is nearing the target, core inflation remains elevated, particularly in the services sector.

The ECB's latest forecasts suggest inflation will average 2.5% in 2024 and gradually decrease to 1.9% by 2026. Growth projections have been slightly lowered, with an expected 0.8% growth in 2024, increasing to 1.5% by 2026. Despite these adjustments, economic activity remains subdued, reflecting weak private consumption and investment.

The ECB's cautious approach faces criticism from some experts who argue it might not be sufficient to address ongoing economic risks. However, the decision has led to more favorable credit conditions, albeit at the expense of lower returns for savers.

Financial markets have shown little reaction, as the rate cut was widely anticipated. The ECB remains non-committal on future rate cuts, emphasizing a data-driven approach.

President Christine Lagarde's hints of further adjustments in upcoming meetings keep analysts and investors on alert, particularly in light of potential actions by other central banks, such as the US Federal Reserve.