The European Central Bank cut interest rates for the first time in nearly five years on Thursday, marking the end of its aggressive policy to curb soaring inflation.
With inflation back toward the central bank’s 2% target, central bank officials cut three key interest rates, which apply to all 20 eurozone countries. The benchmark deposit rate fell to 3.75% from 4%, the highest level in the central bank’s 26-year history, and has remained at that rate since September last year.
“The outlook for inflation has improved significantly,” policymakers said in Thursday’s statement. “Now is the time to ease the degree of restraint on monetary policy.”
There is growing evidence around the world that policymakers believe high interest rates are effective in dampening the economy and bringing down inflation. Lowering rates now would provide some relief, making it less expensive for businesses and households to get credit.
“Monetary policy has kept financing conditions tight,” policymakers said. “This has made an important contribution to the retreat in inflation, by restraining demand and keeping inflation expectations anchored.”
Europe's benchmark stock index climbed to a record high on Thursday ahead of the rate cut announcement.
On Wednesday, the Bank of Canada became the first Group of Seven central bank to cut interest rates. The Swiss and Swedish central banks have also recently cut rates.
The U.S. is more cautious, with Fed officials waiting to feel confident that recent higher inflation data will end. The Bank of England has left the door open to cutting interest rates, with some officials saying a rate cut could happen this summer.
