ECB Drops Key Interest Rates to Boost Economic Growth in the Euro Area

Monetary policy plays a vital role in shaping the economy, with experts predicting that the 12-month Euribor rate will remain above three percent this year. The European Central Bank (ECB) is expected to lower its key interest rates by 0.25 percentage points, which typically boosts household consumption and business investment. Four economists anticipate multiple interest rate cuts throughout the year to stimulate economic growth.

The ECB’s decision to lower interest rates is driven by a significant slowdown in inflation, which has fallen from 5.5 percent in June 2023 to 2.4 percent in April. The central bank aims to achieve price stability with a target inflation rate of two percent. Interest rate cuts are expected to make loans more affordable, encouraging spending and investment.

The impact of key interest rates extends beyond the financial sector and influences borrowing costs and consumer behavior across the economy. The ECB’s interest rate decisions are based on factors like inflation trends and economic recovery in the euro area. Economic forecasts play a crucial role in shaping expectations for future interest rate cuts and market reactions, taking into account risks such as geopolitical tensions and wage increases, particularly in Germany, which could drive up prices.

The International Monetary Fund (IMF) projects modest growth for the euro area economy, predicting a 0.8 percent increase this year and 1.5 percent next year. However, risks to inflation slowdown include geopolitical tensions and wage increases, particularly in Germany, which could drive up prices. The central bank remains flexible in its approach to interest rate cuts, closely monitoring economic indicators like GDP growth and unemployment rates while continuing its efforts towards price stability with a target inflation rate of two percent by end of the year.

In Finland, interest rate cuts are beneficial for households with mortgage debt as rates are linked to market conditions