ECB Cuts Interest Rates Amidst Growth Concerns

Image © European Central Bank

The European Central Bank (ECB) cut interest rates by 25 basis points amidst growing concerns about the Eurozone's economic outlook.

At its meeting in Slovenia, the ECB announced a cut to the deposit rate to 3.25% from 3.5%, noting "recent downside surprises in indicators of economic activity."

"Today’s decision to step up the pace of rate cuts clearly signals a change in how the central bank is looking at the eurozone economy," says Carsten Brzeski, Global Head of Macro at ING Bank.

He explains that the ECB looks much more concerned about (the lack of) growth and inflation undershooting than five weeks ago when it last cut interest rates and issued guidance.

The ECB said it still thinks interest rates remain at "restrictive" levels in an acknowledgement they can be reduced further.

The market expects another rate cut in December and a steady run of cuts over the subsequent months.

Yet, the ECB was also careful to ensure it didn't encourage the market to bet more aggressively on the pace and quantum of future rate cuts.

"Inflation is expected to rise in the coming months," said the ECB in its statement. "Domestic inflation remains high, as wages are still rising at an elevated pace."

Furthermore, the ECB maintained its guidance that it will keep policy rates sufficiently restrictive for as long as necessary.

"The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction," it added.