The European Central Bank on Thursday cut its key interest rates in a surprise move, after holding them steady in the previous two months, as euro area inflation is expected to slow further in the coming months.
The three main interest rates were lowered by 10 basis points, while economists had expected to bank to maintain status quo despite expectations of more stimulus.
The Governing Council, led by President Mario Draghi, slashed the refinancing rate to a record low 0.05 percent from 0.15 percent, following its policy meeting in Frankfurt. In June, the bank had cut the rate.
The bank reduced the deposit rate to -0.20 percent from -0.10 percent. In June, the bank had slashed the rate from zero to negative, which in effect meant charging Eurozone banks for parking excess funds at the ECB, which was a first for a leading central bank.
The marginal lending rate was cut to 0.30 percent from 0.40 percent, following the 35 basis point reduction in June.
Expectations of another move to loosen policy by the ECB strengthened late last month, when Draghi suggested further declines in Eurozone inflation expectations. He had also said that the preparation for outright purchases of asset-backed securities has been moving forward at the ECB.
Most economists had expected the central bank to adopt more quantitative easing, which could risk the credibility of the central bank, than to cut rates again.
Draghi is set hold his customary post-decision press conference at 8.30 am ET, when he is likely to face intense questioning regarding the latest rate cuts and any further action.
"We will know whether this was the prelude to another monetary policy fireworks or just the easiest way out to prevent QE without a loss of face," ING Bank Economist Carsten Brzeski said.
Eurozone inflation slowed in August to its lowest since prices starting rising since November 2009. At 0.3 percent, the figure has moved further away from the ECB's target of 'below, but close to 2 percent'.
Economic sentiment in the euro area eased to an eight-month low in August, underscoring rising pessimism amid heightened geopolitical tensions and stagnating economic recovery.
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May 01, 2026 15:54 ET Central banks dominated the economics news flow this week with almost all major ones announcing their latest policy decisions and many boosted expectations for a rate hike in June. In other news, several countries released the preliminary data for first quarter economic growth. In the U.S., comments by Fed Chair Jerome Powell were also in focus as his term ends this month.