European Central Bank cuts interest rates as inflation cools

June 6 (UPI) -- The European Central Bank Thursday lowered three key interest rates by 25 basis points, citing falling inflation.

The action brings refinancing rates to 4.25%, lending rates to 4.5% and deposit rates to 3.75%.

"Since our meeting in September 2023, inflation has fallen by more than 2.5% and the inflation outlook has improved markedly. Underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons," ECB President Christine Lagarde said during a press conference.

The interest rates were lowered based on what the ECB described as an updated assessment of the inflation outlook.

It said it is now appropriate "to moderate the degree of monetary policy restriction after nine months of holding rates steady."

The bank said restrictive monetary policies have dampened demand "keeping inflation expectations well anchored" and that has "made a major contribution to bringing inflation back down."

Even as the progress on inflation is happening and the outlook is improving, the ECB said domestic price pressures in Europe remain strong as wage growth has elevated.

ECB projects headline inflation to average 2.5% through 2024, 2.2% in 2025 and 1.9% in 2026.

"We are determined to ensure that inflation returns to our 2% medium-term target in a timely manner. We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim," Lagarde said.

The ECB also confirmed Thursday that it will reduce the Eurosystem's securities holdings established to stabilize the economy under the pandemic emergency purchase program by $8.16 billion.