The European Central Bank cut interest rates for the first time in five years on Thursday, lowering them from a record high by 25 basis points to 3.75 per cent.
The move is seen as the start of an easing cycle, but lingering price and wage pressures are clouding the outlook and may force the euro zone's central bank to wait months before cutting again.
In lowering the rate, the bank has joined institutions in Canada, Sweden and Switzerland in starting to unwind steep rate increases used to tame a post-pandemic inflation surge.
“The governing council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction,” the ECB said.
While the bank kept open its options for July, a string of influential policymakers, including board member Isabel Schnabel and Dutch central bank chief Klaas Knot have already made the case for a pause next month, suggesting the next window of opportunity for easing will be in September.
Economists expect another two rate cuts from the ECB this year, most likely in September and December, while markets are pricing between one and two additional moves – a big change from the start of the year, when more than five cuts were anticipated.
“Interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission,” the ECB added. “The governing council is not pre-committing to a particular rate path.”
Conservative policymakers, who still appear to command a majority on the rate-setting governing council, have argued that the ECB is not in any hurry to cut since a rebound in the economy proves high rates are not choking off growth.
Part of their caution may be due to unexpectedly stubborn inflation. The ECB raised its 2025 inflation projection to 2.2 per cent on Thursday from 2.0 per cent.
“Despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year,” the central bank said.
Some economists say the biggest risk to the rate cut schedule is the US Federal Reserve, not wages and inflation.
The Fed has clearly signalled a delay in policy easing, and a further delay in US rate cuts is likely to make the ECB more cautious too, as a widening interest rate differential would weaken the euro and raise imported inflation.
Attention now turns to ECB President Christine Lagarde's press conference, where she is likely to be grilled about the ECB's likely next moves.
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Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
White hydrogen: Naturally occurring hydrogen
Chromite: Hard, metallic mineral containing iron oxide and chromium oxide
Ultramafic rocks: Dark-coloured rocks rich in magnesium or iron with very low silica content
Ophiolite: A section of the earth’s crust, which is oceanic in nature that has since been uplifted and exposed on land
Olivine: A commonly occurring magnesium iron silicate mineral that derives its name for its olive-green yellow-green colour
Match info
Newcastle United 1
Joselu (11')
Tottenham Hotspur 2
Vertonghen (8'), Alli (18')
Other acts on the Jazz Garden bill
Sharrie Williams
The American singer is hugely respected in blues circles due to her passionate vocals and songwriting. Born and raised in Michigan, Williams began recording and touring as a teenage gospel singer. Her career took off with the blues band The Wiseguys. Such was the acclaim of their live shows that they toured throughout Europe and in Africa. As a solo artist, Williams has also collaborated with the likes of the late Dizzy Gillespie, Van Morrison and Mavis Staples.
Lin Rountree
An accomplished smooth jazz artist who blends his chilled approach with R‘n’B. Trained at the Duke Ellington School of the Arts in Washington, DC, Rountree formed his own band in 2004. He has also recorded with the likes of Kem, Dwele and Conya Doss. He comes to Dubai on the back of his new single Pass The Groove, from his forthcoming 2018 album Stronger Still, which may follow his five previous solo albums in cracking the top 10 of the US jazz charts.
Anita Williams
Dubai-based singer Anita Williams will open the night with a set of covers and swing, jazz and blues standards that made her an in-demand singer across the emirate. The Irish singer has been performing in Dubai since 2008 at venues such as MusicHall and Voda Bar. Her Jazz Garden appearance is career highlight as she will use the event to perform the original song Big Blue Eyes, the single from her debut solo album, due for release soon.
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First Person
Richard Flanagan
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Desert Warrior
Starring: Anthony Mackie, Aiysha Hart, Ben Kingsley
Director: Rupert Wyatt
Rating: 3/5
Company profile
Name: Oulo.com
Founder: Kamal Nazha
Based: Dubai
Founded: 2020
Number of employees: 5
Sector: Technology
Funding: $450,000
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