European Central Bank Cuts Interest Rates

The European Central Bank (ECB) has cut the interest rates it will offer on bank deposits by 0.25%, its first rate cut of the post-COVID era.

What’s the scoop?

• Expected Cut: Although the timeline for interest rate cuts from America’s Federal Reserve remains unclear, this sized cut was expected from the ECB’s meeting today with 96% certainty.
• Global Coordination: Yesterday, the Bank of Canada also reduced interest rate targets by 0.25%, marking the first instance of rate cuts from a G7 nation and potentially signaling more central banks will be following suit in the near future.
• Inflation In Focus: While updated projections from the ECB now anticipate an uptick in inflation for 2025 as a result of the cut, ECB Chair Christine Lagarde maintains that her organization remains resolute in the fight against inflation.

Bankless Take:

Economic data from countries around the world has been on the decline in recent months, giving increased confidence to central bankers that the battle against inflation is over and enabling them to reduce interest rates.

Many anticipate that capital will flood into risky assets like crypto as prevailing risk free rates (i.e.; the interest rates offered by central banks) are aggressively slashed in the coming months, however, the commencement of these cuts has also historically signaled impending recession.