ECB cuts interest rates for fifth time since June

The European Central Bank (ECB) has cut eurozone interest rates by a quarter of a percentage point. The fifth rate cut since June brings the main refinancing rate, the rate at which banks park excess cash at the ECB, to 2.75 per cent.

The cut from 3 per cent to 2.75 per cent was widely expected by analysts. The ECB's other two interest rates will also be cut by 25 basis points from 5 February. In doing so, the ECB hopes to stimulate the stagnating eurozone economy.

The "disinflation process" is well on track, the ECB said. Inflation is evolving as expected and is on track to return to 2 per cent, the ECB's medium-term inflation target, in the course of 2025. Annual inflation in the euro area stood at 2.4 per cent in December.

"The Governing Council's recent interest rate cuts mean that new loans will gradually become less expensive for businesses and households," said ECB president Christine Lagarde in a press release. Savers, meanwhile, will receive lower returns on their savings.

US takes different approach

The ECB's approach differs from that of the US Federal Reserve, which held rates steady on Wednesday after three successive cuts. The US economy is in better shape than Europe's, with "strong" growth and "solid" labour market conditions, so the central bank can take its time, said Federal Reserve chairman Jerome Powell.

Notably, the Federal Reserve did not follow the wishes of US president Donald Trump, who wants to cut interest rates to stimulate the economy. But the central bank fears that could rekindle inflation. Powell said they will "wait and study" the impact of Trump's policies, such as mass deportations and increased tariffs, before deciding on further cuts.

 

PHOTO © Kirill KUDRYAVTSEV / AFP


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ECB cuts interest rates by quarter point to 3 per cent
The European Central Bank (ECB) cut eurozone interest rates by a quarter of a percentage point, as expected by analysts. The rate the ECB pays on...
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