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ECB Cuts Rates but Declines to Commit to Future Policy Path

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icon 06/06/24
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ECB Cuts Rates but Declines to Commit to Future Policy Path

On Thursday, the European Central Bank cut interest rates from record levels, following through on a move that policymakers all but promised, although the outlook for interest rates over the remainder of the year is still unclear.

The ECB reduced its benchmark deposit rate as expected by 0.25% to 3.75% from the all-time high of 4%. The interest rate on the ECB’s main refinancing operations was also cut by 0.25% to 4.25%, and the rate of the marginal lending facility was also cut to 4.50%.

There was however still uncertainty over how officials would approach future possible cuts later this year, and the ECB said it would not commit to a specific rate path.

The central bank instead said it would keep policy rates restrictive enough for as long as required to ensure that price gains cool reliably to the 2% medium-term target. It also reiterated that the rate-setting Governing Council would remain data-dependent and approach rate decisions on a meeting-by-meeting basis.

Before the meeting, several officials strongly indicated that the ECB would cut rates, citing signs of easing inflation in the eurozone currency area.

In May, ECB President Christine Lagarde said she felt price pressures were under control, especially as supply chain constraints and an energy crisis fade.

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