For the first time since 2016, and after a series of hikes since 2022, the ECB lowered its main key rate (refinancing rate) from 4.5% to 4.25%, in order to breathe new life into the Old Continent's economy. The deposit rate, which had remained unchanged since 2019, was cut from 4 to 3.75%.
The institution thus moved away from the policy advocated by the Federal Reserve, and, in a rare move, beat it to the punch in an attempt to revive the eurozone, in the hope that inflation will not start to rise again. On the other side of the Atlantic, the buoyancy of the economy has curbed any desire to lower rates, which should therefore remain steady for a few months.
This divergence in monetary policy could have adverse effects. While lower rates should stimulate European growth in the short term, the decoupling of European and US interest rates could weaken the euro against the dollar, raising the cost of imports and thus boosting inflation in the eurozone.
But there's no guarantee that Christine won't get back on the pedal with Jerome. The Chairwoman insisted on the uncertainties ahead and hinted that it might not proceed rapidly with further cuts, and will take its time with monetary easing.
