The European Central Bank (ECB) has cut the main interest rate in the eurozone for the second time this year. Central bank policymakers in Frankfurt decided to cut borrowing costs by a quarter of a percentage point to 3.50 per cent. With the lower interest rate, the ECB aims to spur the ailing economic recovery in the euro area as inflation moves towards the 2 per cent target.

The decision is in line with economists' expectations. In June, the ECB also cut interest rates by a quarter of a percentage point, from a record low of 4 per cent to 3.75 per cent. That was the first cut since 2019. At the previous interest rate meeting in July, the central bank kept another interest rate pause to first wait for further developments in inflation.

Eurozone inflation, meanwhile, fell to 2.2 per cent in August. That is the lowest level in three years. Core inflation, which excludes sharply fluctuating food and energy prices, did remain stubbornly high at 2.8 per cent in August.

Lower interest rates make it cheaper for banks to borrow money from the central bank. This allows banks to lower the interest rate for the money they lend to consumers, businesses and governments. Among other things, this leads to lower costs for companies to finance investments. Mortgage rates will also fall. Savings, on the other hand, will become less attractive.

ECB president Christine Lagarde will explain the interest rate decision at a press conference later in the day. This will focus on hints about future interest rate hikes. At the previous meeting in July, Lagarde released little about this, stating that further interest rate cuts will be considered on a meeting-by-meeting basis. The central bank will meet again on interest rates in October and December. Financial markets are hoping the ECB will cut interest rates further this year.

ING economist Carsten Brzeski does not expect Lagarde to get specific about future interest rate cuts. She has always said that decisions depend on available information. Brzeski does think the ECB will come up with another cut in December.