ECB to decide on interest rates with cut expected

Amid declining inflation in the eurozone, the European Central Bank (ECB) is expected to announce a widely anticipated interest rate cut on Thursday. The decision, following an external meeting in Slovenia, is set to be revealed in the afternoon.

ECB to decide on interest rates with cut expected

Currently, the ECB's key deposit rate, which banks earn on funds held at the central bank, sits at 3.5%. Analysts predict a 0.25 percentage point reduction, driven by the eurozone's weakening economy and falling inflation.

ECB President Christine Lagarde hinted in a recent speech to the European Parliament that a rate cut could be on the table for the central bank's October meeting.

Progress in taming inflation

Inflation in the eurozone dropped to 1.8% in September, down from 2.2% in August, marking the first time since mid-2021 that inflation fell below the ECB's 2% target. However, economists caution that the central bank still faces challenges, as core inflation, which excludes energy and food prices, remains high at 2.7%, only slightly down by 0.1 percentage point in September.

The ECB began cutting rates in June, reducing them by 0.25 percentage points for the first time since inflation surged. A second cut followed in September.

In managing monetary policy, the ECB faces a delicate balancing act. High interest rates help curb inflation by making borrowing more expensive, which can slow economic activity. However, raising rates too quickly could strain businesses and consumers reliant on loans, while reducing them too fast risks reigniting inflation.