The European Central Bank is reducing key interest rates for the first time in five years

The European Central Bank (ECB) decided to cut three key interest rates by 25 basis points for the first time in five years. This step marks a change in monetary policy aimed at adapting to new economic conditions.

According to the ECB's official press release, from June 12, 2024, the interest rate on main refinancing operations will decrease to 4.25%, the interest rate on margin lending will decrease to 4.50%, and the interest rate on deposits will decrease to 3.75%. This decision was made after careful analysis of the current economic situation and inflation forecasts.

The ECB explained its decision by the need to soften the monetary policy after nine months of keeping rates at the previous level. The updated assessment of inflation prospects and the dynamics of core inflation indicates the expediency of such a step. During this time, inflation decreased by more than 2.5 percentage points, and forecasts for its further decrease have improved significantly.

The decrease in inflation is also confirmed by the decrease in core inflation, which indicates a weakening of price pressure and a decrease in inflation expectations at all horizons. This is an important factor for stabilizing the economic situation in the region.

Despite this, the ECB notes that monetary policy still remains accommodative, helping to keep demand at a certain level and strengthening inflationary expectations. This, in turn, contributed to the reduction of inflation to the current level.

However, despite the progress made, domestic price pressures remain high due to accelerating wage growth. According to forecasts, inflation next year may still be higher than the target level, which requires further monitoring and possible additional measures by the ECB.

This move by the ECB is an important signal to markets and economic agents, indicating the bank's flexibility in response to changing economic conditions. Further actions will depend on the development of the economic situation and the effectiveness of the measures already taken.