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 moving back toward the central bank’s 2% target, central bank officials cut three key interest rates that 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, where it has remained since September.
“The outlook for inflation has improved significantly. Now is the time to ease the constraints on monetary policy,” policymakers said in Thursday’s statement.
There is growing evidence around the world that policymakers believe high interest rates are effective in dampening the economy and reducing 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, as it has restrained demand and kept inflation expectations anchored.”
Europe's benchmark stock index climbed to a record high on Thursday ahead of the rate cut news.
On Wednesday, the Bank of Canada became the first Group of Seven central bank to cut interest rates. The Swiss and Swedish central banks also recently cut rates.
The U.S. was more cautious, with Fed officials waiting for signs that a recent run-up in inflation data was ending. The Bank of England left the door open to cutting interest rates, with some officials saying a cut could happen this summer.
