The European Central Bank's (ECB) headquarters in Frankfurt, Germany. (Photo: AFP/ VNA)

The rate was lowered to 3.75%, the first reduction in five years and a notable move to curb the persistent inflation across the 20-nation euro zone.

The ECB forecasts for inflation were revised upward to 2.5% for this year and 2.2% for 2025.

The ECB says it will keep its interest rate policy "sufficiently restrictive for as long as necessary" to bring inflation down to the 2% target.

Explaining its decision to cut rates, the ECB said, “Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission, it’s now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady.”