The European Central Bank (ECB) has lowered its key interest rates by 0.25 percentage points, pushing the rate it pays in bank deposits to 2%, the lowest level since late 2022.

The further reduction means that the ECB has effectively cut the interest rate in half since this time last year, when the deposit rate was 4%.

The move, while not unexpected, is further good news for Irish borrowers, as it should mean that the cost of repaying loans here will fall further.

For companies, where interest rates are often calculated against international benchmarks such as three-month Euribor, the trend lower that has been in place since the start of last year has continued.

In recent days, the three-month Euribor rates dropped below 2% in expectation of Thursday’s ECB cut.

Commentary

In its commentary accompanying the rate decision, the ECB said that inflation in the euro area is currently at around the bank’s 2% medium-term target and is forecast to fall slightly in 2026.

The bank did warn that there is high uncertainty in the forecasts. It said that trade policies are expected to weigh on business investment and exports, but that euro-area government investment in defence and infrastructure will increase economic support in the medium term.

The ECB did not give any substantial guidance on the whether it would continue to lower rates in future, saying it is “not pre-committing to a particular rate path”.