The European Central Bank (ECB) lowered its key interest rates by a quarter percentage point on Thursday, following a series of hikes aimed at getting a grip on high inflation.
The ECB cut its deposit rate by 0.25 percentage points to 3.75% after almost nine months at a record high, the bank announced in Frankfurt.
It also announced a cut of its refinancing rate by 0.25 percentage points to 4.25%.
The ECB's action ends a rate-hiking cycle that began in July 2022.
Lower interest rates are good news for borrowers, as they make loans more favourable. Savers, on the other hand, can expect to receive less interest on their accounts.
As the central bank's decision was expected, many financial institutions had already adjusted their conditions.
Economists had expected the monetary reins to be loosened after inflation weakened significantly. In fact, inflation in the eurozone picked up again somewhat in May: Consumer prices rose by 2.6% year-on-year after 2.4 % in April. However, inflation is now a long way off the record high of 10.7% in late 2022.
Higher inflation rates reduce the purchasing power of consumers, meaning they can afford less for one euro.
According to the central bank's latest forecast, inflation in the eurozone will fall somewhat more slowly than recently expected. For the current year, the ECB now expects an inflation rate of 2.5%, compared to 2.3% predicted by the central bank in March. A rate of 2.2% is expected in 2025 (March forecast: 2.0 %).
The ECB is aiming for an annual inflation rate of 2% for the eurozone in the medium term. At this level, the monetary authorities believe price stability is guaranteed.
"We are satisfied with the noticeable decline in inflation, but the road back to price stability is bumpy," ECB executive board member Isabel Schnabel recently told German broadcaster ARD.
In order to get a grip on inflation, which had risen to record levels following the start of Russia's war on Ukraine, the ECB raised interest rates 10 times in a row starting in July 2022.
This makes loans more expensive, can curb demand and thus counteract high inflation rates. At the same time, more expensive financing is a burden for the economy and private individuals who want to borrow money.
