European Central Bank (ECB), which serves as the central bank for the European Union countries with Euro as their currency, has slashed its interest rate by 25 basis points during this week’s meeting.
The reduction follows the ECB’s quarter-point cut in June and brings its interest rate to 3.5%. It was a widely expected move, considering that the Eurozone’s inflation is getting closer to the targeted inflation mark and the risk of recession is becoming more apparent.
The inflation in the Eurozone fell to 2.2% in August compared to 2.6% in the month prior. It also marked a three-year low.
According to ECB president Christine Lagarde, the rate cut was unanimously approved compared to the June reduction that saw Governor of Austria’s central bank Robert Holzmann hold out.
The traders are now seeing a significant probability of further interest rate cuts coming during the October meeting while fully expecting a reduction in December. However, the ECB reiterated that it will take all factors into consideration before deciding on the next move.
“Our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. We are not pre-committing to a particular rate path,” ECB said in a statement.