MercoPress. South Atlantic News Agency

European Central Bank cuts basic interest rate 0.25 percentage points to 3,5%

Inflation in the Euro zone fell to 2.2% in August from 2.6% in July, after peaking at 10.6% in October 2022.

While inflation in the Euro zone was down to 2,2% in August, and with sliding tendency, plus a lack of growth reaction from the economy, the European Central Bank, ECB, on Thursday decided to cut interest rates by another 0.25 percentage points to 3,5%.

 This provided relief to households and businesses, and in a statement ECB pointed out that, “recent inflation data have come in broadly as expected,” but also warned the path ahead would not be smooth, “inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates.”

Inflation in the Euro zone fell to 2.2% in August from 2.6% in July, after peaking at 10.6% in October 2022. Consumer prices spiked after Russia cut off most natural gas supplies to Europe following its full-scale invasion of Ukraine in February 2022, pushing up utility bills.

Recovery from the COVID pandemic also led to supply shortages of parts and raw materials, further boosting inflation, which then spread to services. The ECB, US Federal Reserve and the Bank of England responded with rapid interest rate hikes. ECB had already cut its deposit rate to 3,75% in June and then paused in July before taking a summer break in August.

Meanwhile, European shares opened more than 1% higher on Thursday, boosted by strong performances in technology stocks. Basic resources gained 2% after base metal prices rose, buoyed by hopes of a U.S. interest rate cut next week.

The Fed is expected to make a first cut in its benchmark rate from a 23-year high of 5.25% to 5.5% at its September 17-18 meeting.