ECB Cuts Rates for Fourth Time This Year

FRANKFURT (Reuters) – The European Central Bank (ECB) cut interest rates for the fourth time this year on Thursday, maintaining the possibility of further easing as inflation approaches its target while the economy remains sluggish.

The ECB, which serves the 20 eurozone countries, lowered the deposit rate to 3.0% from 3.25%, down from a record 4.0% set in June.

The bank indicated further cuts may be forthcoming by omitting language that previously described rates as 'sufficiently restrictive,' referring to levels that inhibit economic growth.

The ECB stated, 'Financing conditions are easing, as the Governing Council’s recent interest rate cuts gradually make new borrowing less expensive for firms and households.' However, it noted that conditions remain tight due to the restrictive monetary policy and the impact of previous rate hikes on existing credit.

While there is no universal definition of 'restrictive', many economists consider a neutral rate—one that neither stimulates nor cools economic growth—to be between 2% and 2.5%.

Following Thursday's announcement, the ECB also reduced the lending rate for banks for one week to 3.15% and for one day to 3.40%.

These lending facilities have seen little use in recent years, as the ECB has provided banks with ample reserves through extensive bond purchases and long-term loans. However, they may gain relevance in the future as these programs wind down. The ECB confirmed it will cease bond purchases under its Pandemic Emergency Purchase Programme this month.