ECB Cuts Interest Rates by 25 Basis Points

In an expected move, the European Central Bank (ECB) slashed interest rates by 25 base points, a day after the U.S. Federal Reserve Bank announced it would retain rates unchanged.

The ECB interest rate cuts came as Europe’s central bank is in the process of continuing its quantitative easing policy.

According to the official statement by the ECB’s Governing Council, the body decided today to cut the ECB’s three key interest rates by 25 basis points. As a result, the rates on the deposit facility, main refinancing operations, and marginal lending facility will be reduced to 2.75%, 2.90%, and 3.15%, respectively, effective February 5, 2025.

This brings the ECB’s deposit rate to its lowest level since early 2023, the decision also came a day after the U.S. Federal Reserve kept interest rates on hold, despite calls from President Donald Trump to significantly lower borrowing costs.

The reasoning behind the ECB governing council to cut the deposit facility rate – the interest rate banks receive when they deposit money with the central bank overnight – is grounded on its revised assessment of inflation, the dynamic of underlying inflation, and the force of monetary policy transmission.

The disinflation process is on track, the ECB Governing Council statement read. The body underlined in the statement it was determined to ensure that inflation stabilizes sustainably at its medium-term target of 2%.

Inflation has continued to evolve in line with expert projections and is expected to return to the Governing Council’s 2% medium-term target within the year.