European Central Bank to cut interest rates for first time in almost five years

In an attempt to give the eurozone an economic boost, the European Central Bank (ECB) is expected to cut interest rates. The much-anticipated move comes at a time of virtually stagnating growth across the bloc. 

The expected first cut in almost five years is intended to give the eurozone an economic boost by stimulating housing markets, investments and consumer spending as the bloc struggles to climb out of stagnation. 

Weak productivity growth, slowing investment, state-led industrialisation in China and the US, and spiking energy and food prices triggered by Russia’s invasion of Ukraine previously raised concerns about Europe’s economic health.

The ECB raised its key rate from below zero to a record high of 4 per cent between July 2022 and September 2023 in an attempt to squash double-digit inflation. The higher interest rates made it more expensive to borrow and buy on credit,thus reducing the demand for goods, but also put a brake on economic growth. 

The move to cut interest rates, which will be officially announced on Thursday, seeks to revitalise Europe’s economy. Further steps, however, are not expected anytime soon. Inflation is overshooting expectations, wage growth is rising and unemployment is reaching a record low. The ECB is, in other words, cutting into an improving situation. 

Most economists seem to anticipate one or two more cuts beyond June. ECB president Christine Lagarde has not given any indications of the likely policy path, ensuring the bank maximum flexibility for future rate cuts.

^{European Central Bank president Christine Lagarde © BELGA PHOTO HATIM KAGHAT}