European Central Bank Cuts Interest Rates

The European Central Bank (ECB) has reduced interest rates by a quarter point for the second consecutive meeting on Thursday, aimed at addressing the dual slowdowns in inflation and economic growth.

This marks the first back-to-back decrease in borrowing costs in 13 years, signaling a shift from previous rate hikes intended to combat high inflation.

Instead, the ECB is now focusing on revitalizing an underperforming Eurozone economy, which has lagged behind the US for much of the past two years.

Recent business activity and sentiment surveys for the region fell short of expectations in September. Additionally, an updated inflation report prior to the ECB's announcement indicated that the annual headline consumer price growth slowed to 1.7%, down from an initial 1.8% and below the central bank’s target of 2%.

The ECB stated, "The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity."

The recent cut of 25 basis points lowers the rate the ECB pays banks on deposits to 3.25%, further widening the gap with the Federal Reserve, which reduced its target rate by 50 points to a range of 4.75% to 5.00% last month.

Policymakers did not provide specific guidance for future rate adjustments, reiterating their approach to base decisions on economic data, inflation outlook, and monetary policy dynamics.

Mark Wall, Chief European Economist at Deutsche Bank, called the ECB's stance "sensible" given the uncertainties within the Eurozone economy. He suggested that this decision could mark the beginning of an accelerated return to normal monetary policy.

Analysts at Capital Economics expect that upcoming economic data may lead to further quarter-point cuts in the next meetings.

Following the ECB's anticipated announcement, the euro traded slightly lower against the dollar.