The European Central Bank (ECB) cut interest rates for the fourth time this year on Thursday, leaving room for further cuts as inflation nears its target and the economy remains weak.
The ECB, which serves as the central bank for the 20 countries in the eurozone, cut the interest rate on bank deposits, which influences financing conditions in the bloc, to 3.0% from 3.25%. In June, the rate was at a record high of 4.0%.
The ECB also signaled that further cuts were possible by removing the reference to the need to keep rates “fairly tight”, an economic term referring to lending rates that are holding back economic growth.
“Financing conditions have eased, as the Governing Council’s gradual rate cuts have made new borrowing cheaper for firms and households,” the ECB said. “However, they remain tight as monetary policy remains tight and previous interest rate hikes still weigh on the balance of available credit.”
There is no universal definition of what is considered a restrictive rate, but economists generally see the neutral zone, which neither stimulates nor hinders growth, as between 2% and 2.5%.
With Thursday’s decision, the ECB also cut the interest rate on one-week loans to 3.15% and overnight loans to 3.40%.
The facility has been rarely used in recent years as the ECB has supplied the banking system with more reserves than it needs through large-scale bond purchases and long-term loans.
However, the facility may become more relevant in the future as those programs wind down. The ECB confirmed on Thursday that it will stop buying bonds under its Pandemic Emergency Purchase Programme (PEPP) this month.
