Euro symbol in Frankfurt, Germany. Photo: Xinhua/VNA

With this adjustment, the interest rate for the deposit facility, the main refinancing operation, and the marginal lending facility are now set at 3%, 3.15% and 3.4% respectively, the bank said in a statement.

The decision to lower interest rates was "based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission," the statement said. This marks the ECB's fourth rate cut this year, reducing rates from their historical highs.

The central bank hiked rates aggressively from mid-2022 to tame surging energy and food costs but, with inflation easing and the eurozone weakening, they have now turned their attention to cuts.

The slowdown in inflation was on track, said the ECB. Previously, the central bank  had reduced its inflation forecast to 2.4% for 2024 and 2.1% for 2025.

The ECB also left open the possibility of more rate cuts in 2025 if economic growth is affected by geopolitical factors in the region and the risk of a new trade war with the US.