The European Central Bank (ECB) has announced its latest interest rate decision today.

For the first time in half a decade, the ECB has cut interest rates for the Euro area, reducing the interest rate from 4.5% to 4.25%, i.e. reducing the interest rate by a quarter of a percent, or 25 basis points.

Europe joins the Bank of Canada in its decision, which yesterday announced its first interest rate cut in almost five years – and the first rate cut by a major economy since 2020.

No unpleasant surprises

Today’s move to cut rates by the bank was in line with market expectations, causing no real alarm bells.

Most analysts and experts have broadly expected the ECB to cut interest rates from June 2024 for some months now, and today’s decision was anticipated to be a 25-basis point cut to 4.25%.

ECB outlook cautiously optimistic

On today’s decision, ECB president Christine Lagarde said that:

 

The Governing Council decided to lower the three key ECB interest rates by 25 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25%, 4.50% and 3.75% respectively, with effect from 12 June 2024.”

Later today, the ECB will be conducting a press conference discussing the decision, at which the markets can expect to hear more of the overall outlook of the ECB going forward, and how hawkish or dovish markets can expect them to be going forward.

Euro area sales nosedives to 0%

Arguably the rate cut decision came not a moment too soon. Just hours before, the Euro area also announced its year-on-year retail sales figures.

In April, retail trade volume fell by 0.5% in the Euro area and by 0.6% in the EU, compared with March 2024, according to first estimates from Eurostat, the statistical office of the European Union.

This effectively meant zero growth in retail trade volumes for the Euro area for last month.

This was quite the harsh turnaround from last month’s report, in which EU sales grew by 0.7%, undoing a 0.5% contraction in February.

It also exceeded analysts’ expectations, who anticipated retail sales dropping by as much as 0.5% in April, 0.1% less than it did.

Undoubtedly, the ECB will be hoping that today’s rate cut will introduce some stimulus for economic growth in the face of such grim figures.

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