- The European Union just made its first cut to interest rates in five years.
- The European Central Bank lowered its main interest rate from 4% to 3.75%.
- Officials tend to lower interest rates when inflation is under control and they want to lift growth.
The European Union has become the latest global economy to cut its benchmark interest rate.
The European Central Bank (ECB) announced on Thursday that it would lower its main interest rate from 4% to 3.75%, marking its first reduction since 2019.
Neil Birrell, chief investment officer at Premier Miton Investors, said in a research note to clients:
"In one of the most flagged central bank interest rate decisions for some time, the ECB followed Canada into the rate cutting cycle. However, the path for further cuts is unlikely to be as predictable or smooth."
"Eurozone inflation is proving more resilient than hoped, as it is in the US and UK, which has to influence the ECB, although they will be keen to keep providing stimulus to the economy, it needs it. As has been the case all the way through the cycle, they have a tight rope to walk," he said.
Economies worldwide have raised interest rates significantly over the last two years after inflation surged following the COVID-19 pandemic.
For example, US inflation surged to a 40-year high of over 9% in the summer of 2022. The US central bank responded by hiking interest rates from nearly zero in early 2022 to over 5% currently, and has yet to make its first cut.
This story is developing.