European Central Bank cuts benchmark rate by quarter point as inflation declines

With inflation subsiding, the European Central Bank cut its benchmark interest rate on Thursday to prop up tepid growth with lower borrowing costs for companies and home buyers.

The bank’s rate-setting council lowered the deposit rate from 3.75% to 3.5% at a meeting at its skyscraper headquarters in Frankfurt.

It was the second rate cut as the bank starts to withdraw some of the swift rate increases it imposed to temper a burst of double-digit inflation that broke out after Russia cut off most natural gas supplies over its invasion of Ukraine.

Inflation is now down to 2.2%, close to the bank’s target of 2%, thanks in part to lower global prices, allowing the ECB to shift its focus to concerns about growth that has been held back by high rates.

The US Federal Reserve is also expected to cut rates from a 23-year high at its meeting on September 17-18.

But experts do not expect a rapid series of rate cuts from either central bank to anywhere near the rock-bottom levels from before the 2020 outbreak of the Covid-19 pandemic.

They say the ECB will tiptoe, rather than slash, and might cut rates only one more time this year.

Inflation is down with the help of lower oil prices.

The ECB said it would take future cuts meeting by meeting depending on incoming information about the economy and “is not pre-committing to a particular rate path”.

Policymakers must keep an eye on simmering inflation among services companies and rising wages as workers push to make up for purchasing power lost to the outburst of inflation that followed the end of the pandemic.