The European Central Bank (ECB) has taken a significant step to address ongoing economic challenges in the European Union (EU) by cutting the lending interest rate from 3.75% to 3.5%. This cut is intended to stimulate borrowing and investment by lowering capital costs for businesses and consumers.

This marks the second cut in 2024 and the third since 2019. In June, the ECB had reduced interest rates from 4% to 3.75%.

The interest rate cut comes at a time when the Eurozone continues to tackle ongoing inflation and slow economic growth, particularly in major economies like Germany and France.

The ECB announced that this cut was based on inflation projections but emphasized it would maintain a “data-dependent and meeting-by-meeting approach.”

“In particular, our interest rate decisions will be based on our 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. We are not pre-committing to a particular rate path,” said ECB President Christine Lagarde in a press conference.

Lagarde noted that this decision, taken during the September 2024 meeting, is part of a broader effort to create a more conducive environment for growth.

However, despite this move, the economic outlook for the Eurozone remains uncertain. Germany, Europe’s largest economy, has seen a slowdown in manufacturing, while France has struggled with a lack of consumer demand.

These factors, coupled with external pressures such as global geopolitical tensions and ongoing supply chain disruptions, have created a complex economic environment that is difficult to navigate.

Following the European Central Bank’s decision to cut interest rates and Lagarde’s press conference, the euro traded higher against the U.S. dollar.

Investors expect the U.S. Federal Reserve to cut its benchmark interest rate by a quarter-point next week, while the Bank of England will likely delay its U.K. rate cut until November.