The European Central Bank has delivered a small cut in interest rates at its June meeting, as expected, the first in nine years and following a nine-month pause.
The main refinancing rate was trimmed by a quarter of a percent to 4.25%, with the marginal lending facility and deposit facility rates also cut by the same 25 basis points.
Financial markets and economists had been expecting the move, with ECB president Christine Lagarde and other officials pretty strong in their suggestions in recent weeks that a 25bps cut would be made at this meeting.
In its statement, the ECB said the governing council decided to lower the three key interest rates as the time was right due to the fall in inflation by more than 2.5 percentage points since its September meeting.
"Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady."
The inflation outlook has also "improved markedly", the council felt, with underlying inflation having also eased, "reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons".
However, making the next move from the ECB unclear, the governing council expects inflation to stay above target "well into next year", with latest staff projections revised up for 2024 and 2025.
Expressing its determination to ensure inflation returns to the 2% target in a timely manner, the ECB will "keep policy rates sufficiently restrictive for as long as necessary to achieve this aim", reiterating the intention to follow its data-dependent and meeting-by-meeting approach to decide when the next rates decision will be made.
"In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path," it said.
Headline CPI inflation is now forecast to average 2.5% in 2024 and 2.2% in 2025, with core inflation, which excludes energy and food, seen at 2.8% in 2024, falling to 2.2% in 2025.
Economic growth is expected to pick up to 0.9% in 2024 and 1.4% in 2025.
Yesterday the Bank of Canada followed recent moves by the Swiss National Bank and Sweden's Riksbank in making the first interest rate cuts since the pandemic.
** Updates: Added decision and statement **