ECB cuts interest rates by quarter point to 3 per cent

The European Central Bank (ECB) cut eurozone interest rates by a quarter of a percentage point, as expected by analysts. The rate the ECB pays on bank deposits fell to 3.0 per cent.

It is the fourth time this year that the ECB has cut rates by a quarter of a percentage point. The rate has been gradually reduced from a record high of 4.0 per cent to the current rate of 3.0 per cent.

By cutting interest rates, the ECB is making it cheaper to borrow money, which it hopes will stimulate the eurozone economy. The cut is in response to a downwardly revised forecast for economic activity. In the third quarter of this year, the eurozone grew by just 0.4 per cent.

The ECB also signalled that further rate cuts are likely by removing a reference to keeping rates "sufficiently restrictive".

In addition, the ECB has become more optimistic about inflation and has lowered inflation expectations for the eurozone. The biggest challenge will be to keep inflation at these low levels in the long term, the bank said.

Self-inflicted uncertainty

During a press conference, ECB president Christine Lagarde said that "the element that has changed is the downside risks, in particular the downside risks to growth". She also said that European politics is creating "self-inflicted uncertainty", referring indirectly to the crises in France and Germany.

"The element that has changed is the downside risks, in particular the downside risks to growth"

Lagarde further warned of the inflationary impact of tariffs, which US president-elect Donald Trump has threatened to impose. But their impact will depend on their scale and on the extent to which other countries retaliate, she added.

"It will depend on the scale of the measures, the retaliation that is decided, the diversion of trade from other parts of the world. And this is a very complex situation with moving parts that we will determine if and when they come," Lagarde said.

^{ECB president Christine Lagarde © PHOTO KIRILL KUDRYAVTSEV / AFP}

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