European Central Bank cut interest rates for 1st time in 5 years, matching forecasts

By Tuba Ongun

The European Central Bank (ECB) on Thursday lowered interest rates for the first time in five years, cutting its three key benchmarks by 25 basis points, meeting market forecasts.

The interest rates on the main refinancing operations plus the marginal lending facility and deposit facility will be lowered to 4.25%, 4.50%, and 3.75% respectively, said a bank statement.

"Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady," the bank said.

The euro area annual consumer inflation rate rose to 2.6% in May, from 2.4% in both March and April, according to the latest data from Eurostat.

The bank stressed that policy rates will be kept sufficiently restrictive for as long as necessary to achieve its 2% medium-term target.