ECB Slashes Rates Amid Shifting Economic Landscape

The European Central Bank (ECB) cut interest rates for the third time this year as inflation in the euro zone subsides. The decision signals a pivot towards supporting economic growth, which has lagged behind the US. The ECB signals more data-driven decisions in future.

The European Central Bank (ECB) has reduced interest rates for the third time in 2023, signaling that inflation within the euro zone is increasingly under control. This marks a strategic shift for the ECB from curbing inflation to fostering economic growth, which has trailed U.S. growth for two consecutive years.

The ECB stated that disinflation is progressing well, with recent economic indicators supporting the decision for another rate cut. The reduction takes the deposit rate to 3.25%, and money markets anticipate further cuts through next March. However, the statement offered no specific future guidance, sticking to the 'meeting by meeting' approach.

While inflation seems to be reigned in at 1.7%, below its 2% target, the ECB acknowledged the damage caused by high interest rates to investment and economic growth. With structural challenges persisting, particularly in Germany, the ECB faces calls to ease policy to avoid undershooting inflation targets and stifling growth.

(With inputs from agencies.)