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ECB's Bold Rate Cut: Navigating a Bumpy Road Ahead

rates, ECB

The European Central Bank (ECB) reduced interest rates for the first time since 2019 last night, as Eurozone inflation gradually subsides. However, President Christine Lagarde cautioned that the future remains uncertain and alluded to a "bumpy road" ahead.

The primary deposit rate was decreased by a quarter point to 3.75 per cent, lowering it from a record high.

Following an unprecedented series of Eurozone rate hikes commencing in mid-2022 to control surging energy and food costs, inflation has been steadily approaching the ECB's target of two per cent. Thursday's reduction, the first since September 2019, occurred after the central bank maintained steady rates since October, offering a much-needed uplift to the beleaguered Eurozone economy.

This move signifies the ECB's divergence from the US Federal Reserve, which has also increased rates aggressively but is not anticipated to commence reductions for several months due to stronger-than-expected economic data.

The focus now shifts to future developments, though the outlook has been complicated by recent stronger-than-expected inflation and growth figures, diminishing the likelihood of a swift easing cycle.

During a press conference following the rate decision, Lagarde emphasised that they were not "pre-committing to any particular rate path".

"What is highly uncertain is the speed at which we progress and the duration it will take," she remarked. "We are aware it will be a bumpy road."

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