European Central Bank cuts interest rates by 25 basis points

The European Central Bank (ECB) lowered interest rates by a quarter point at its October meeting on Thursday, aligning with market expectations while offering vague guidance on future decisions.

European Central Bank cuts interest rates by 25 basis points

The Governing Council of the ECB opted to reduce its three key interest rates by 25 basis points. Consequently, the rates for the deposit facility, the main refinancing operations, and the marginal lending facility are now set at 3.25%, 3.40%, and 3.65%, respectively.

Market consensus, as reported by FXStreet, had anticipated this decision. 

The statement indicated, "The incoming information on inflation shows that the disinflationary process is progressing well. The inflation outlook has also been influenced by recent unexpected declines in economic activity indicators, while financing conditions continue to be restrictive."

The Frankfurt-based institution reaffirmed its commitment to bringing inflation back to its 2% target in a timely manner and emphasized its readiness to maintain "sufficiently restrictive" policy rates for as long as necessary to achieve this goal.

Policymakers reiterated the bank's "data-dependent and meeting-by-meeting" approach to monetary policy

The statement noted, "The Governing Council is not pre-committing to a specific rate path," echoing the language used in September's decision.

Following 450 basis points—or 4.5 percentage points—of interest rate increases during the current cycle, the ECB made its first 25 basis point cut in June and held rates steady in July. In September, it again reduced the key deposit rate by 25 basis points and lowered both the marginal lending facility and the main refinancing rates by 60 basis points to narrow the gap between the deposit rate and the main refinancing operations.

The euro's reaction was subdued; the single currency was valued at USD1.0862 shortly before the announcement and slightly increased to USD1.0865 in the minutes following it.