ECB further cuts interest rates due to concerns about the economy

This article was last updated on October 17, 2024

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ECB further cuts interest rates due to concerns about the economy

The European Central Bank (ECB) is cutting interest rates again. This is happening not only because the ECB believes that inflation in the euro zone is coming under control, but also because there are concerns about the economy. Because wages are now rising less rapidly, the ECB dares to cut interest rates for the third time since June.

The new step brings the interest rate to 3.25 percent. When the ECB started interest rates in June to decrease this was still 4 percent, a record. At a meeting in the Slovenian capital Ljubljana, the ECB decided to cut interest rates by another 0.25 percentage point.

The record interest rate was introduced last year to curb high price rises in the euro zone. High interest rates made it more difficult to borrow money. This was supposed to cool down the economy, which would bring prices back under control.

Inflation specter

At 1.7 percent in September, inflation in the euro zone is on track to decline. “Incoming inflation data show that the disinflation process is well on track,” the central bank said in a statement. However, it is still at a high level for countries such as the Netherlands (3.3 percent) and Belgium (4.3 percent).

Although the specter of inflation has not yet been completely dispelled, concerns about the economy are increasingly gaining the upper hand at the ECB. Orders are falling, especially in the manufacturing industry, for example due to declining exports. European car manufacturers are in dire straits, for example closure of factories and mass layoffs are threatened.

For this reason, the ECB is now taking its foot off the brakes on the economy. President Christine Lagarde speaks of “recent downward surprises in economic activity indicators”.

Lagarde later explains the ECB’s interest rate decision in a press meeting.