The European Central Bank’s latest interest rate reduction is designed to keep inflation from settling below its 2% target, ECB Chief Economist Philip Lane said Wednesday.
Speaking to investors in Dublin, Lane explained that the ECB’s most recent rate cut was necessary to prevent inflation from remaining below target for an extended period.
“This cut helps ensure that the projected negative inflation deviation over the next 18 months remains temporary and does not convert into a longer-term deviation of inflation from the target,” Lane said.
The ECB lowered its key interest rate last week for the eighth time since June 2024, following data that showed the annual inflation rate dropped to 1.9% in May.
Energy prices have fallen sharply since President Trump announced major tariff increases on global imports. As a result, ECB economists now forecast that inflation will average just 1.6% next year, significantly below the central bank’s 2% target.