The European Central Bank (ECB) has cut interest rates for the second time this year, lowering its key rate to 3.5% from 3.75%. Markets had been expecting this 25 basis point drop, after the bank cut interest rates in June, for the first time in five years.
In its announcement, the ECB stated: "Based on the Governing Council's latest assessment of inflation projections, the dynamics of underlying inflation, and the strength of monetary policy, it is appropriate to take the next step in easing monetary policy restrictions."
Economic growth in the European zone has been revised down to 0.2%, from an earlier forecast of 0.3% for the second quarter, based on data released by Eurostat's statistics department, making today's rate reduction more likely.
The data was followed by industrial production figures from Germany, Europe's largest economy, which showed a 2.4% drop in output in July compared to the previous month, putting pressure on the ECB to set growth-supportive policies.
European zone inflation fell to 2.2% in August, the lowest level since July 2021, close to the ECB's 2% target, which also raised expectations of further rate cuts.
Both the US Federal Reserve (Fed) and the Bank of England (BoE) are expected to announce their interest rate decisions next week.
The Fed is expected to announce a 25 basis point cut on Wednesday, after keeping rates between 5.25% and 5.5% since July 2023.
Markets expect the BoE to keep rates unchanged next Thursday, after cutting rates to 5% in August, although two more rate cuts are expected this year.
