The European Central Bank (ECB) has decided to lower interest rates by 0.25 percentage points to 3.75 percent. This is the first interest rate cut since September 2019, Christine Lagarde, President of the ECB, announced.

Economic stimulus

The ECB has raised interest rates in recent years to curb inflation. Now that inflation is moving towards the desired 2 percent, the bank sees fit to cut interest rates to stimulate the economy.

Lower interest rates make borrowing and spending money more attractive, which can promote economic growth. Savings interest rates may not rise further, which could be an incentive for savers to spend their money instead of hoarding it.

Financial markets are responding positively

In anticipation of the announcement, stock markets already posted significant price gains due to optimism about the likelihood of interest rate cuts. The market responded positively to expectations that the ECB would intervene to stimulate economic activity.

The crypto market also showed an upward trend. Investors also anticipated the interest rate cut, which led to an increase in the value of various cryptocurrencies.

Outlook for Inflation

The ECB expects inflation to average 2.5 percent this year, drop to 2.2 percent in 2025, and reach 1.9 percent in 2026.

Later today, Christine Lagarde will provide further explanation of the ECB’s plans. It may become clearer about the likelihood of another interest rate cut in July.


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