European Central Bank announces interest rate cut, Bitcoin reacts – DiarioBitcoin
By Hannah Perez
Bitcoin behaved volatile and momentarily rebounded above USD $71,500 following the ECB’s decision to cut reference rates for the first time since 2019.
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- ECB joins central banks announcing cuts in reference rates
- The interest rate for euro zone countries went from 4% to 3.75%, a cut of 0.25%
- Will the US Federal Reserve be next to announce a cut?
- Bitcoin momentarily touched $71,500 on the news before retreating
The European Central Bank (ECB) announced this Thursday a long-awaited interest rate cut despite estimates of persistent inflation for the coming months.
In a widely anticipated meeting, the ECB’s Governing Council reported cutting its reference rate by a quarter point, to 3.75% from an all-time high of 4%, where it had been since September 2023.
“Price pressures have weakened and inflation expectations have declined across all horizons.“, the bank said in a statement, arguing about the reasons for reducing borrowing costs.
Despite the decision, the bank noted that the battle against inflation has not yet been won, estimating that prices will remain higher than expected, above the 2% target. In this sense, the ECB staff updated its annual average headline inflation outlook for 2024 at 2.5%, up from the previous estimate of 2.3% a year.
Likewise, it raised its forecast for 2025 from 2% to 2.2%, while the projection for 2026 remained at 1.9%.
“Wage growth is high and inflation is likely to remain above target well into next year“said the bank, andemphasizing that any further rate cuts would depend on incoming data and refusing to say how far or how quickly cuts could be implemented.
While the annual inflation rate for euro zone countries has dropped to 2.6% in May from a peak of 10.6% in October 2022, the pace of the decline has slowed in recent months, and has even increased slightly from 2.4% in April, a persistent inflation trend that has also been observed in other global economies.
Central banks around the world took steps to ease monetary policies in 2020 in the face of the COVID-19 pandemic, but began to reverse the easing in 2022 as a result of rampant inflation, in what has been one of the longest spells. steep interest rate hikes in recent history.
This is the ECB’s first interest rate cut since 2019, and is expected to prompt the US Federal Reserve (FED) to make a similar decision within the coming months.
Although other central banks such as Canada, Sweden and Swiss have already announced interest rate cuts, the US FED has been reluctant to such a measure due to persistent inflation data. In April, the US consumer price index (CPI) was 3.4% year over year, above the 2% expected.
Bitcoin persists above USD $71,000
The cryptocurrency market reacted volatilely to the news. Bitcoin (BTC), the main digital currency by market capitalization, registered zigzagging movements on the price chart after having rebounded above USD $71,600 momentarily in the afternoon hours (EDT) on Wednesday.
At the time of publication, BTC is around USD $71,100 with an increase of less than 1% on the day and more than 3.8% on the week. The rest of the main cryptocurrencies also show both daily and weekly gains, while the global capitalization is around USD $2.65 trillion, with a modest rise of 0.7% in the last 24 hours.
Traders are likely to take the news as a sign of an upcoming US rate cut announcement, a move that specialists expect the FED to announce after July or August of this year; although the outlook is still uncertain. The pace of rate cuts in the US will also potentially set the tone for other central banks.
Elevated benchmark rates have been a bearish factor for global markets, including cryptocurrencies, dampening investor appetite for risk assets. A cut is expected to be favorable for both traditional markets and digital currencies.
Article by Hannah Estefanía Pérez / DailyBitcoin
Picture of Unsplash
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