ECB: turnaround in interest rate policy?

The European Central Bank (ECB) has cut its interest rate for the first time since 2019. The 0.25 percentage point reduction from 4.5 to 4.25 percent makes borrowing cheaper while savers will generally receive less interest on their deposits. The ECB had raised its key interest rate ten times since 2022. The bank justified the cut pointing to easing inflation and a drop in price pressure. Commentators are divided over the wisdom of the move.

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Zeit Online (DE) /

One hurdle less

Zeit Online welcomes the move:

“The turnaround in interest rates that has now been initiated will make it a little easier to deal with the challenges of the future. Whether it's the fight against climate change or restoring defence capabilities, more investment is needed, both private and public. ... There is no question that money alone can't solve all the problems, and cheap money certainly doesn't. But interest rates are one of the key economic parameters and more relevant for the economy than many regulations. The prospect of lower interest rates removes one of the hurdles blocking the reform of the economy. There are still plenty more to be overcome.”

Libération (FR) /

New perspectives

Libération distinguishes between the short and long-term effects:

“In any case this decision won't have an impact on the European economy until next year at the earliest, because it always takes several months for monetary policy to be passed on. But the expected change of course has already started to change the attitude of commercial banks, which set their mortgage rates based on long-term interest rates. The slight drop in these rates in recent months has led to new mortgages rebounding after being in freefall for almost two years. The Banque de France announced on Thursday that the volume of credit rose to 8.9 billion euros in April, compared to 6.9 billion in March.”

Frankfurter Allgemeine Zeitung (DE) /

On a slippery slope

For the Frankfurter Allgemeine Zeitung the rate cut is premature:

“Firstly, inflation is not yet where it should be, and secondly, there was already the first setback in May when it rose from 2.4 to 2.6 percent. Are the sceptics being nit-pickers? No, they're just being precise. Even the ECB has now realised that the inflation risks arising from the pandemic period and the war in Ukraine were underestimated. The wars, the very uncertain geopolitical situation, the pressure from supply chains, rising wages are all creating additional and new inflation risks. With this small step the ECB is putting itself on a slippery slope.”

La Stampa (IT) /

Crisis overcome

The interest rate cut testifies to the strength of the EU, La Stampa explains:

“Europe works. Yesterday's decision by the ECB shows that the Russian-induced inflation crisis which reduced our purchasing power for many months has been overcome. We're coming out of it without paying too high a price and, above all, without adding to the internal imbalances in the Eurozone. Unlike the debt crisis at the beginning of the past decade, our monetary union has not led to tensions between strong and weak countries. With its current 20 members, the euro is very solid.”