The European Central Bank cut interest rates for the third time this year, noting that inflation in the euro zone was increasingly under control but the economic outlook had worsened.
The new cut comes in the first consecutive series of interest rate cuts in 13 years, and represents a shift in the European Central Bank’s focus from reducing inflation to protecting economic growth, which has lagged far behind its counterpart in the United States for two years in a row.
The European Central Bank reduced deposit interest rates by a quarter point to 3.25%.
This step comes as a response from the European Central Bank to the decline in the inflation rate in the euro zone.
The interest rate at which banks can borrow money from the European Central Bank was reduced by 3.4%.
Reduction signals
The Central Bank avoided providing any indications about taking further steps to reduce interest rates during the current year, indicating that it will continue to make decisions based on available data, and the markets expect 3 additional cuts until March 2025.
It is noteworthy that the support provided by lowering the main interest rate on the economic situation does not show its effect until later, and this is why this step is good news for the German economy, which is going through a period of weakness.
Businesses can invest more easily thanks to cheaper loans, and consumers can borrow at lower costs, for example when building homes.
However, savers, in return, should expect lower interest rates at their banks and assume lower returns, such as those related to life insurance.
For his part, Executive Director of the German Banking Association, Heiner Herkenhof, said that by reducing interest rates, the European Central Bank took more into account economic concerns in the euro zone.
But he immediately warned against illusions, saying: “Reducing key interest rates will not eliminate the continued weak growth, because it is a structural weakness, and instead, Germany in particular needs to make decisive decisions in the field of economic policy.”
