The European Central Bank lowered interest rates on Thursday for the first time in nearly five years, signaling the end of its aggressive policy to stamp out a surge in inflation.
As inflation returned within sight of the bank’s 2 percent target, officials cut their three key interest rates, which apply across all 20 countries that use the euro. The benchmark deposit rate was lowered to 3.75 percent from 4 percent, the highest in the bank’s 26-year history and where the rate had been set since September.
“The inflation outlook has improved markedly,” policymakers said in a statement on Thursday. “It is now appropriate to moderate the degree of monetary policy restriction.”
There is growing evidence around the world that policymakers believe high interest rates have been effective at restraining economies to slow inflation. Now, lowering rates is set to provide some relief, making it cheaper for businesses and households to obtain loans.
“Monetary policy has kept financing conditions restrictive,” policymakers said. “By dampening demand and keeping inflation expectations well anchored, this has made a major contribution to bringing inflation back down.”
On Thursday, Europe’s benchmark stock index climbed to a record high before the rate cut was announced.
On Wednesday, the Bank of Canada became the first Group of 7 central bank to cut rates. Central banks in Switzerland and Sweden also cut rates recently.
There is more caution in the United States, where officials at the Federal Reserve are waiting to be more confident that a recent run of stubborn inflation readings will end. The Bank of England has opened the door for rate cuts, with some officials saying rates could be lowered this summer.