FRANKFURT, Dec. 12 (Xinhua) -- The European Central Bank (ECB) reduced its key interest rates by 25 basis points on Thursday at a rate-setting meeting, marking the fourth rate cut this year.
The move follows an aggressive cycle of rate hikes that pushed rates to record highs in September 2023.
With this adjustment, the interest rates for the deposit facility, the main refinancing operation, and the marginal lending facility are now set at 3 percent, 3.15 percent, and 3.4 percent respectively, the bank said in a statement.
The decision to lower interest rates was "based on its updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission," the statement said.
The ECB confirmed that inflation is expected to reach its 2-percent target in the medium term "on a sustained basis," citing measures of underlying inflation.
In a notable shift from its previous stance, the ECB omitted its commitment to maintaining restrictive policy "as long as necessary." The Governing Council reaffirmed its commitment to ensuring that inflation sustainably stabilizes at the medium-term target of 2 percent.
In the latest edition of the staff macroeconomic projections released on Thursday, the ECB indicated slower growth for the euro area economy than previously forecast in September, citing a slowdown of growth in the current quarter.
Eurozone's growth is now projected at 0.7 percent in 2024, 1.1 percent in 2025, and 1.4 percent in 2026. The ECB attributed its growth outlook to improving real incomes, which are expected to drive consumption and investment.
Inflation is projected to be 2.4 percent in 2024, 2.1 percent in 2025, and 1.9 percent in 2026, aligning closely with the ECB's target.
It is the fourth time the ECB has cut interest rates this year following an aggressive cycle of rate hikes that pushed rates to record highs in September 2023.
The 25 basis points rate cut on Thursday was in line with market expectations. According to a flash estimate from Eurostat, the European Commission's statistical office, inflation rebounded in November, rising to 2.3 percent from 2 percent in October. This followed a drop to 1.7 percent in September, the lowest level since April 2021.
Energy price increases primarily drove the recent rebound in inflation, the ECB noted. It expects inflation to fluctuate in the near term before settling "sustainably" at around 2 percent. The ECB also reiterated its readiness to adjust policy tools as needed to ensure inflation sustainability returns to target.
While the ECB has not declared victory in its prolonged fight against inflation, which began seven years ago, the rate cuts initiated in June this year signal a cautious approach to easing monetary policy constraints.
