CORRECTS - UPDATE - European Central Bank cuts interest rate by 25 basis points

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UPDATE WITH MORE DETAILS

By Tuba Ongun

The European Central Bank (ECB) on Thursday cut interest rate by 25 basis points, meeting market expectations.

Officials led by President Christine Lagarde cut key deposit rate by a quarter-point to 3.50%.

The move followed a pause in July after a first cut in June.

The ECB also lowered its main refinancing and marginal lending rates by 60 points to 3.65% and 3.90%, respectively.

"Based on the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to take another step in moderating the degree of monetary policy restriction," it said in a statement.

According to a flash estimate, headline inflation fell to a three-year low of 2.2% in August thanks to a decline in energy costs, indicating some progress toward the ECB’s 2% target.

Core inflation, on the other hand, is still higher at 2.8%, driven up by the services sector.

The bank held its inflation projection for this year at 2.5% and at 2.2% for next year.

The ECB also reduced growth forecast for this year to 0.8%, a 0.1 percentage point downward revision, due to "a weaker contribution from domestic demand over the next few quarters."

The GDP in the euro area is projected to increase 1.3% next year and 1.5% in 2026, it said.

The bank reiterated its pledge to keep policy rates sufficiently restrictive for as long as necessary to achieve its 2% inflation target.