ECB cuts interest rates due to low inflation, projects inflation to rise

From Morningstar: 2024-06-06 09:45:00

The European Central Bank (ECB) announced a 0.25 percentage point interest rate cut due to lower inflation, marking the first cut in eight years. Markets are expecting possible cuts in July and September, with analysts predicting a slow pace of rate decreases starting in September. The ECB projected an average inflation of 2.5% in 2024 and economic growth to pick up.

The ECB’s rate cut precedes the decisions of the US Federal Reserve (Fed) and Bank of England on June 12 and 20, respectively. The ECB acted ahead of other major central banks like the Swiss National Bank and Bank of Canada. Analysts anticipate the ECB will keep rates unchanged in July but resume cuts slowly in September, with some predicting cuts in October and December.

The effects of interest rate cuts could lead to rising equity markets and lower bond yields, impacting borrowers and savers differently. Lower rates may decrease cash savings rates but make loans cheaper for consumers. The ECB reported a slight decline in lending rates for business loans and a rise in mortgage rates. Markets are pricing in the possibility of two further rate cuts in the Eurozone this year.



Read more at Morningstar: ECB Cuts Rates as Expected, Raises Inflation Outlook