Eurozone interest rate holds at 3.75% as ECB prepares for September rate cut

The European Central Bank (ECB) decided to keep Eurozone’s interest rates steady at 3.75%. However, they hinted at a possible rate cut in September. This decision comes as we’re all eagerly looking forward to the Federal Reserve’s first rate cut since 2020.

All over the world, central banks are either cutting rates or considering it. Inflation is easing from its highest levels in decades. Investors are curious about how quickly and how much major banks will lower borrowing costs.

These decisions affect traditional financial markets, cryptocurrencies, and even real estate. Last month, the ECB cut its key interest rate by a quarter point to 3.75%.

This widened the policy gap with the Federal Reserve, which has kept rates steady between 5.25% and 5.5% for seven meetings in a row. Right now, investors expect both the ECB and the Federal Reserve to cut rates by a quarter point in September.

The International Monetary Fund (IMF) warned this week that worsening public finances have made many countries more vulnerable to economic shocks than expected before the pandemic.

Elections in America and Europe could affect government debt, inflation, and the global economy.

ECB’s President Christine Lagarde said that their decision on a possible September rate cut is “wide open”. She downplayed fears of persistent price pressures. In her most recent press conference, she said that:

“What we do in September is wide open and will be determined on the basis of all the data that we will be receiving.”

The ECB’s governing council has no desire to share its rate cut plans with the public. Though after the meeting, several council members reportedly said there was a clear agreement to leave options open for September.

They’ve said that services inflation staying above 4% is “a worry” and could delay a rate cut until later in the year.

“Let’s come back in September and have another look,” one member said. Inflation slowed to 2.5% in June from a peak of 10.6% in 2022. Lagarde believes it is right on track to reach the 2% target by the end of next year. 

Although Eurozone inflation is on a “disinflationary track”, the ECB needs to keep rates high. “We will stay in restrictive territory for as long as it takes to get to target and we are not at target,” Lagarde explained.