The ECB cut interest rates by 25 basis points as scheduled, affirming that the fight against inflation is “progressing smoothly”

On Thursday, the ECB cut interest rates by 25 basis points for the second time in a row as there were signs that growth and inflation in the Eurozone were weakening.

The ECB lowered the deposit mechanism interest rate from 3.5% to 3.25%, in line with market expectations, the lowest level since May 2023; at the same time, the main refinancing rate and marginal loan interest rate were adjusted from 3.65% and 3.9% to 3.65%, respectively.

After the interest rate decision was announced, traders' bets on the ECB's interest rate cut remained stable. It is expected to cut interest rates by 25 basis points in December. EUR/USD retreated after rising 10 points in the short term.

The ECB made no prior commitment to a specific interest rate path and reiterated that it will continue to use a data-based meeting-by-meeting approach to determine the appropriate level and duration of restrictions, and will maintain “restrictive” interest rates as needed.

The ECB said that the anti-inflation process is “progressing smoothly” and that inflation is expected to fall back to the target level after rising again.

Inflation data released earlier on Thursday showed that the Eurozone's annual CPI rate in September fell to 1.7% from 2.2% last month, falling below the central bank's 2% target for the first time in more than three years.

The ECB also stated, “The outlook for inflation is also affected by the recent unexpected decline in economic activity indicators.” Earlier, German officials warned that Europe's largest economy would shrink for the second year in a row.

After economic data fell short of expectations, people generally expected the ECB to cut interest rates this week.

Prior to the meeting, swap market traders expected to cut interest rates 4 to 5 times by the middle of next year by 25 basis points, including almost certainly cutting interest rates in December.

Analysts said there were no surprises with the ECB's interest rate decision. If inflation and PMI data for October and November continue to unexpectedly decline, it is possible to cut interest rates by 50 basis points at the next meeting in December. Given that interest rate cuts and more interest rate cuts (there will be 5 interest rate cuts by the end of next year) have been digested by the European stock market, the current earnings season is more likely to dominate market trends.

ECB President Lagarde will hold a press conference in half an hour to provide more clues about future interest rate trends.

Continuously updated...