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European Central Bank Lowers Interest Rates By 25 Basis Points

A day after Canada became the first G7 country to lower interest rates, the European Central Bank (ECB) has announced that it is cutting its benchmark rate by 25 basis points.

The reduction, which was widely expected by economists and traders, lowers the European Central Bank’s key interest rate to 3.75% from a record high of 4% previously.

It’s the first reduction to interest rates in Europe since September 2019.

“It is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady,” said the central bank in a news release announcing the rate cut decision.

Despite the rate cut, the European Central Bank raised its outlook for headline inflation this year to 2.5% from 2.3%.

Futures traders have fully priced in one additional interest rate cut this year, though some economists are forecasting two more cuts from the European Central Bank by year’s end.

The rate cut in Europe comes a day after the Bank of Canada reduced its trendsetting overnight interest rate by 25 basis points, becoming the first Group of Seven (G7) country to do so.

Earlier this year, central banks in Sweden and Switzerland announced their own interest rate cuts, citing slowing economic growth as the reasons for the move.

While the European Central Bank said that its outlook has improved, it stressed that
inflation is likely to stay above its 2% annualized target well into 2025.