The European Central Bank (ECB) is lowering interest rates in the eurozone again for the first time following its ongoing series of key rate hikes in the fight against inflation. After almost nine months at a record high, the key interest rate is now being reduced by 0.25 percentage points to 4.25 per cent. The deposit rate, which is decisive on the financial market and which banks receive for money parked at the central bank, has been lowered from four per cent to 3.75 per cent. With this step downwards, the ECB is following the lead of the central banks in Canada, Switzerland and Sweden, which already cut interest rates some time ago.

While savers must be prepared for the fact that they will tend to receive less interest on money in savings accounts and ledgers in the future, borrowers can look forward to falling interest rates. The cut in the base rate will make loans cheaper and reduce the financing costs incurred, for example for a property purchase. This leads to a higher demand for loans and thus boosts consumption and new investments. Overall, this can strengthen economic momentum and promote upturns in a wide range of sectors. 

Building interest rates have risen in recent weeks despite the prospect of falling ECB key interest rates. In June, the average interest rate for a ten-year borrowing rate was 3.72 per cent, compared to 3.42 per cent at the beginning of the year. The development of building interest rates is more dependent on the inflation rate. The crisis-ridden construction industry has little hope in the interest rate cut. Although construction loans are becoming cheaper on the one hand, inflation remains high and with it the sharp rise in material costs. Many construction companies are complaining about a lack of new orders and cancellations of already planned projects. Even if it doesn't look like it at the moment, lower interest rates on loans can help the economy in the long term.

According to the central bank's latest forecast, inflation in the eurozone will fall somewhat more slowly than recently expected. For the current year, the ECB expects an inflation rate of 2.5 per cent. A rate of 2.2 per cent is expected in 2025. The central bank is aiming for an annual inflation rate of two per cent for the eurozone in the medium term. The monetary authorities believe that price stability is guaranteed at this level. They are satisfied with the noticeable decline in inflation, but the road back to price stability is bumpy.

A look into the future shows that it is still uncertain whether and how many further interest rate cuts will follow and when they can be expected. Some experts expect that further interest rate cuts could come as early as this autumn and next year. It will be crucial to keep a close eye on these new developments and act accordingly. Stable prices are an essential prerequisite for sustainable growth in Europe and a flourishing economy. It is therefore important to maintain this stability in order to ensure healthy economic development in the long term. 

Source: https://orf.at/stories/3359871/