ECB accelerates rate cuts to counteract flagging growth
Subscribe to enjoy similar stories. The European Central Bank lowered interest rates for the second meeting in a row, speeding the pace of rate cuts to support an economy flashing increasing signs of weakness. The ECB said it would reduce its key interest rate to 3.25% from 3.5%.
That widens a gap in benchmark borrowing costs with the Federal Reserve. The ECB is now more worried about supporting growth than snuffing out inflation, making cuts at consecutive meetings for just the first time since 2011. Thursday’s statement cited “recent downside surprises in indicators of economic activity." Europe faces a different set of problems from the U.S., where growth is strong.
The eurozone economy appears to have fallen back over the summer after a brief pickup in the first half of the year. Germany, the bloc’s biggest economy, has barely grown since before the pandemic. And signals for the next few months don’t look good.
The composite purchasing managers index for the eurozone, a closely watched survey of private businesses, dipped into contractionary territory last month for the first time since February. Weaker growth in China, a key export destination, and persistently higher energy prices sparked by the Ukraine war have hammered consumers and businesses. Headline inflation, at 1.7% last month, is below the ECB’s 2% target.
Any wariness about the growth outlook from ECB President Christine Lagarde, who will address a news conference starting at 8:45 a.m. ET, could indicate that the bank is preparing to ease faster than investors are expecting. The ECB said in a statement that incoming data shows the disinflationary process is well on track.
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