European Central Bank cuts key rates in eurozone

The European Central Bank (ECB) on Thursday cut its key interest rate by 0.25 percentage points, with inflation in the eurozone at its lowest level since mid-2021.

The deposit facility rate - the interest that banks receive for parking funds at the ECB - now stands at 3.5%.

The bank's refinancing rate - the interest rate at which banks borrow money from the ECB - was lowered from 4.25% to 3.65%.

The ECB last cut its interest rates in June after a long period of increasing rates to help control inflation, and then kept them steady in July.

Many economists had expected a rate cut this month.

Inflation in the eurozone fell to 2.2% year-on-year in August, the lowest figure since summer 2021, but central banks have warned that core inflation - excluding more volatile indicators such as energy and food prices - remains at 2.8%.

In Germany, inflation stands at 1.9%.

"Based on the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to take another step in moderating the degree of monetary policy restriction," the bank said.

"Inflation is expected to rise again in the latter part of this year ... Inflation should then decline towards our [2%] target over the second half of next year," the bank predicted.

Cutting interest rates is also one way to try and stimulate economic growth by making it cheaper for individuals and businesses to borrow money.

Several European countries including Germany are struggling to achieve any growth this year.

"Financing conditions remain restrictive, and economic activity is still subdued, reflecting weak private consumption and investment," the bank said.

Conversely, the lower rates mean savers will have to adjust to falling interest rates at their bank and lower returns on investments such as life insurance policies.