The European Central Bank on Thursday lowered the deposit rate by 25 basis points. The widely-anticipated move marks the ECB's third interest rate cut of the year.
"The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity. Meanwhile, financing conditions remain restrictive," the central bank stated.
The ECB's decision to lower rates marks its first set of back-to-back rate cuts in 13 years. The new interest rates will be effective from Oct. 23 and are set at 3.25% for the deposit facility, 3.6% for the refinancing rate, and 3.65% for the marginal lending rate.
The central bank says that it sees inflation increasing in the coming months before coming down to its 2% medium-term target next year. The ECB noted domestic inflation remains high, as wages continue to rise at an elevated pace and said it "will keep policy rates sufficiently restrictive for as long as necessary" to ensure that inflation returns to its 2% target.
Markets React: European markets are trading higher on Thursday as traders assess the ECB's interest rate cut. The pan-European Stoxx 600 index was up 0.8% at around 1:30 p.m. London time. Investors will be watching the Xtrackers MSCI Europe Hedged Equity ETF (NYSE: DBEU) and the SPDR Portfolio Europe ETF (NYSE: SPEU) to gauge the market reaction to the cuts.