First rate cut since 2019

The European Central Bank’s decision to cut interest rates by 25 basis points was voted for by all of the 20 national representatives except one, ECB President Christine Lagarde told reporters, declining to specify who.

“We were all absolutely united to agree that our path would be data-dependent, that we would decide meeting-by-meeting, and there was absolutely no dissent on that front,” she added.

All Governing Council members confirmed that the “three criteria” of the inflation outlook, underlying inflation and the transmission of monetary policy would continue to drive their analysis.

— Jenni Reid

European Central Bank President Christine Lagarde told reporters in Frankfurt, Germany, that the Governing Council’s decision to cut rates was based on the sharp decline in headline inflation and in the bank’s confidence in its own forecasting abilities.

Lagarde said the ECB had been through a “first phase” of robust and rapid tightening, as it raised rates by 450 basis points between July 2022 and September 2023. It was in a “phase of holding” until today.

Each phase divided inflation by half, as it fell from a peak of 10.6% in October 2022, to 5.2% in September 2023, to 2.6% in May 2024, Lagarde said.

“At each and every step of the way when we reassessed and decided to move in a different direction we have halved inflation,” Lagarde said, responding to a question from CNBC’s Annette Weisbach.

Another key factor in the GC’s decision-making was also the “reliability and strength” of ECB staff projections, Lagarde said, noting there had been little variation in the bank’s fourth-quarter 2025 inflation forecast since September.

“It is on the basis of this reliability and solidity and robustness of those projections that we have made that decision to actually cut,” she said.

Decisions on future cuts will be “data-dependent” and decided “meeting by meeting,” she added, based on its three criteria of the inflation outlook, underlying inflation and the transmission of monetary policy.

— Jenni Reid

Euro zone government bond yields perked up on Thursday, shortly after the European Central Bank announced its first interest rate cut in five years.

Germany’s 10-year bond yield was up nearly 8 basis points to 2.573% at 2:13 p.m. London time, with the country’s 2-year bond yield higher by just under 6 basis points to 3.033%.

Italy’s 10-year bond yield was up almost 9 basis points to 3.893%, while the yield of the Spanish bond of the same maturity added 7 basis points to 3.299%.

— Ruxandra Iordache

The European Central Bank sees slightly stronger economic growth in the euro area this year, with its latest staff projections suggesting a 0.9.% annual growth rate in 2024, up from the 0.6% forecast announced in March.

Its growth projection for 2025 was taken down from 1.5% previously to a revised 1.4$. The outlook for 2026 was kept unchanged at 1.6%.

— Jenni Reid

In an instant reaction note from Clemens Fuest, the president of Munich-based research institution the Ifo, said further cuts could be a long time coming.

 “The move [rate cut] makes sense, because inflation in Europe is now heading back toward the target of two percent.” he said.

“However, this interest rate cut has already been priced in on the markets, so the stimulus for the economy will be limited. In view of significant rises in wages and postponed interest rate cuts in the U.S., it is rather doubtful that further interest rate cuts will follow soon.” 

The European Central Bank’s interest rate cut of Thursday “ends what has been one of the most aggressive and swift rate hiking cycles in modern times,” said Lindsay James, investment strategist at Quilter Investors in the wake of the announcement. “The starting gun has been fired.”

James noted that the ECB has now “stolen a march on the Bank of England and Federal Reserves,” which are potentially as long as a few months short of cutting.

“The major central banks will not want to diverge too far from one another, and with political risk being ratcheted up, they also won’t want to be seen as too influential,” James added.

— Ruxandra Iordache

European Central Bank President Christine Lagarde is expected to take the stage at 14:45 Frankfurt time for a press briefing detailing the thinking behind the Governing Council’s latest decision.

— Ruxandra Iordache

Andrew Kenningham, chief Europe economist at Capital Economics, said that the Bank’s forecasts and statements, alongside the rate cut, are slightly hawkish.

“The ECB has revised up its forecasts for both headline and core inflation slightly for this year and next. Both measure are now expected to average 2.2% next year rather than 2.0% and 2.1% respectively. This implies that the future path of rate cuts may be a little slower than previously anticipated,” he said in flash research note.

“Meanwhile, the lines from the April statement that ‘most measures of underlying inflation are easing’ and ‘wage growth is gradually moderating’ were replaced with language comparing the inflation rate to where it was last September.

“And the statement simply says the Bank ‘will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim’ and ‘is not pre-committing to a particular rate path’ rather than providing conditional guidance that rates may be cut further.”

The European Central Bank’s Governing Council said the inflation outlook had “improved markedly” since September 2023, and that monetary policy had dampened demand and kept “inflation expectations well anchored.”

“Underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons,” it said.

However, it added that domestic price pressures remain strong, wage growth is elevated and inflation is likely to stay above the 2% target “well into next year.”

— Jenni Reid

The European Central Bank’s Governing Council raised its closely-watched quarterly inflation forecast at its June meeting.

Staff now see average annual inflation at 2.5% in 2025, up from a 2.3% forecast issued during the March meeting.

The projection for 2025 was increased to 2.2% from 2%, while the 2026 outlook remained at 1.9%.

— Jenni Reid

The European Central Bank cut interest rates by 25 basis points at its June meeting.

— Jenni Reid

Since European Central Bank officials began signaling an intention to cut interest rates in June, they have also been emphasizing that they are willing to take this step before the U.S. Federal Reserve, which is sometimes characterized as the global leader on policy.

Fed minutes from its May meeting suggest ongoing uncertainty about when the central bank will begin to ease monetary policy.

“If we cut more aggressively than the Fed, that may lead to a lower exchange rate on our end, which would be inflationary,” ECB Governing Council member Klaas Knot said at an event in London last week.

“But less Fed cutting means tighter conditions globally. If the Fed cut less than expected, we will get two opposing effects… it is not clear [Fed policy] will move more in one direction or the other.”

Both central banks are focused on their “domestic mandate,” Knot added.

— Jenni Reid

The anticipated rate cut from the European Central Bank comes despite a disappointing euro zone inflation print for May.

Headline inflation in the bloc rose slightly more than expected, to 2.6%, the European Union’s statistics agency said last week.

While fluctuations in that rate are expected for the remainder of the year due to the impact of the energy market and the unwinding of fiscal support measures, core inflation — which excludes energy, food, alcohol and tobacco — also missed forecasts, rising to 2.9%.

Perhaps most concerningly for ECB policymakers, services inflation — an indication of domestic price pressures — edged higher to 4.1% from 3.7%.

“I think dialing back a little bit on the restrictiveness [of financial conditions] probably makes sense… growth has started to pick up, but the consumer is still struggling to find its feet here,” Nora Szentivanyi, global economist at JPMorgan, told CNBC on Thursday.

“But I think when we look at the cycle overall, I don’t see a very compelling case for material easing over the extent of the cycle. Services inflation is very sticky still. at this point, it’s running close to a 5% annualized rate, [and] wage inflation is still sicky,” Szentivanyi added.

European stocks were higher in early afternoon deals, as the ECB announcement looms, with brighter sentiment also benefiting U.K. markets.

The pan-European Stoxx 600 index was up 0.64% at 524.59 points near 11:30 a.m. London time, within touching distance of the intraday record of 525.33 marked on May 16.

The euro was trading 0.15% higher against the British pound at 0.851, and up 0.06% against the U.S. dollar at 1.087.

The shared currency has been struggling against sterling and the greenback this year, falling by 1.9% and 1.5% respectively, amid diverging interest rate expectations.

— Jenni Reid

The European Central Bank’s Governing Council will proceed with caution given the recent uptick in euro zone inflation, but would nonetheless be justified in cutting rates until the end of the year, according to its former Vice President Vitor Constâncio.

“Short-term dynamics may create in some members some doubts about the linear, continuing, declining path of inflation. So I think that the Council will be perhaps too cautious itself,” Constâncio told CNBC’s “Squawk Box Europe” on Thursday.

That means market expectations for a total of just two reductions this year, are “not off the mark,” he said.

“Although I think that there would be justification, indeed, to continue with cuts until the end of the year, because wages have been decelerating, the economy is still very weak when compared with the United States,” he continued.

Cuts would be appropriate even if the fresh ECB projections include an increase in the average inflation forecast for the year from the current 2.3%, Constâncio said.

— Jenni Reid

Despite an interest rate cut expected this week, profits at a handful of major European banks will remain robust, according to Berenberg.

One of the lender’s stocks could rise by more than 40% over the next 12 months, according to the investment bank.

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— Ganesh Rao

The European Central Bank’s set to make its decision on a day of weaker-than-expected data out of the euro zone’s largest economy, Germany.

New industrial orders in Germany were provisionally down 0.2% from the previous month, the federal statistics office said. Economists previously surveyed by Reuters had expected a 0.5% increase.

Orders were down 1.6% on an annual basis.

“New orders in April 2024 declined in four branches of manufacturing due to the significantly smaller number of large-scale orders compared with the previous month,” the statistics office said.

New orders rose 2.9% in April from March when excluding the traditionally more volatile large-scale orders.

— Sophie Kiderlin

European Central Bank policymakers are set to cut interest rates on Thursday, as the path ahead for inflation appears reassuring, Shaan Raithatha, senior economist at Vanguard Europe told CNBC’s “Squawk Box Europe” on Thursday. He added that multiple such rate reductions are on the horizon for 2024.

“Aside from slight momentum in services inflation in the most recent months it feels like the ECB have enough conviction to go ahead later today,” he said. “The inflation outlook is looking promising.”

ECB policymakers have also sent a “strong signal” that there will be further interest rate cuts beyond the one expected on Thursday, Raithatha said.

— Sophie Kiderlin

The European Central Bank is likely to look past recent “bad news” on inflation to cut interest rates in June, but may only opt for one more reduction this year, Jean-Claude Trichet, former European Central Bank president, told CNBC’s “Squawk on the Street” on Tuesday.

“My intuition is that they will pull the trigger and decrease rates by point 25 percent, even if there has been some bad news… as regards the goal, which is to stabilize prices and having inflation going down,” Trichet said.

Bad news includes the recent upticks in headline inflation, core inflation and services inflation, and negotiated wages picking up in the first quarter of the year.

The good news is that euro zone unemployment is at an all-time low and purchasing managers’ index figures indicate an ongoing economic recovery, he added.

“We must accept that data could [change] month-on-month or quarter-to-quarter so we must be prudent… based on current data, instead of thinking [the ECB] would decrease [interest rates] twice after June, it is more reasonable to think of one decrease of rates,” Trichet said.

“But again this is my central intuition, it can change. We could have a lot of better news as regards inflation and we could have even more bad news,” he added.

— Jenni Reid