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The European Central Bank (ECB) has cut interest rates for the third time, marking the first consecutive reduction in 13 years. The move follows a 25-basis-point cut, reflecting a faster-than-expected decline in inflation and worsening economic conditions across the Eurozone. Eurozone inflation dropped to 1.8% in September, its lowest since 2021, and below the ECB's 2% target. More troubling is the deteriorating economic outlook, particularly in Germany, where the economy is forecasted to contract for a second consecutive year in 2024.
This shift in the ECB’s policy comes after earlier predictions that borrowing costs would decline only quarterly. The initial cut was made in June, followed by another in September, with central bankers signaling further reductions. Today, the ECB's Governing Council announced a 25-basis-point cut in the deposit facility rate, which directs the ECB's monetary policy. The cut is based on updated inflation assessments and weaker-than-expected economic activity.
Although inflation may rise in the coming months, it is expected to fall back to target next year. Domestic inflation remains high due to rising wages, but pressures from labor costs are expected to ease gradually. Despite tight financing conditions, the ECB remains committed to monitoring inflation dynamics closely.
