The European Central Bank (ECB) has lowered interest rates for the first time after five consecutive meetings, signaling a shift in monetary policy. The main refinancing rate was reduced to 4.25 percent, while the deposit rate now stands at 3.75 percent, down from the previous rate of 4.0 percent.

Already in advance, ECB Council member Joachim Nagel had hinted that the likelihood of an interest rate hike would be high if the economic projections did not show any significant change. Despite this adjustment, ECB Director Isabel Schnabel emphasized that a further interest rate cut in the following month was not certain and cautious approaches should be taken.

With the recent interest rate cut, loans become cheaper, which could stimulate the economy. Investments are thereby facilitated, while saving becomes less attractive as deposit rates could fall. Particularly, the German economy could benefit from this measure. Germany's GDP increased by 0.2 percent in the first quarter, slightly below the EU average of 0.3 percent.

The latest inflation data from the Eurozone increased pressure on the ECB to take action. The annual inflation rate rose to 2.6 percent, from 2.4 percent in the previous month, and was higher than expected. The ECB aims for a medium-term inflation rate of just under two percent.

At the Market, the Interest Rate Cut had Already Been Largely Expected. The DAX, which was up about 0.7 percent ahead of the decision, showed little change after the announcement. Generally, interest rate cuts are positive for financial markets as they lower financing costs for companies and improve profit prospects, which can have a positive impact on stock prices.

The economic departments of the Eurozone central banks have slightly raised their inflation forecasts for the years 2024 and 2025. Experts now expect consumer prices to rise by 2.5 percent in 2024 and 2.2 percent in 2025. The economy of the Eurozone is projected to grow by 0.9 percent in 2024 and 1.4 percent in 2025.

ECB President Christine Lagarde stated that growth risks are balanced in the short term, but there is a danger that the forecasts might be too optimistic in the longer term. She emphasized that the ECB continues to rely on sufficient relevant data to make future decisions.

Federal Finance Minister Christian Lindner (FDP) evaluated the interest rate cut positively. "The ECB's interest rate cut is positive news for the economy," he stated via the short message service X. He emphasized that combating inflation is successful when the ECB's monetary policy is supported by stability-oriented fiscal policy. "We won't relent on that – the debt brake is an inflation brake," Lindner said.