The European Central Bank lowers its key rates by a quarter of a point

The European Central Bank (ECB) announced on Thursday June 6 that it was lowering its key rates by 0.25 points, from 4% to 3.75%. This decision puts an end to an unprecedented cycle of rate increases. launched in July 2022, followed by nine months of stability at record levels. The last ECB rate cut was almost five years ago, in September 2019.

The rest of the new cycle, however, is far from being written. A second consecutive rate cut in July is anything but a given because “we are not on autopilot”warned the “hawk” Joachim Nagel, president of the Bundesbank, the German central bank.

The governor of the Bank of the Netherlands, Claas Knot, made a remarkable exit at the end of May by affirming that the ECB meetings accompanied by economic projections would in his eyes constitute the moments “keys to (the) interest rate decisions”.

These projections are published quarterly, with the next ones scheduled for September and December. François Villeroy de Galhau, governor of the Bank of France, pleaded for “maximum optionality”the ECB having to keep its “freedom in timing and rhythm”.

The rise in consumer prices in the euro zone has been divided by more than four since the record of 10.6% over one year reached in October 2022, when energy prices were soaring because of the war in Ukraine and disruptions to global supply chains linked to the Covid-19 pandemic were still being felt.

Inflation started to rise again in May, reaching 2.6%, after 2.4% in April and March. But this slight jump does not call into question the underlying downward trend, underline the experts.
The ECB nevertheless wants the rise in consumer prices to reach the 2% target it has set by 2025. She is therefore attentive “possible second round effects of salary increases” – when rising wages and rising prices mutually interact, thus fueling inflation – explains Franck Dixmier, head of bond management at Allianz GI.