ECB Cuts Interest Rates Again as Eurozone Inflation Slows

Policymakers who set interest rates for the 20 countries that use the euro have lowered rates in back-to-back meetings for the first time since 2011.

The European Central Bank cut interest rates on Thursday for the third time in about four months, as inflation in the eurozone has cooled faster than expected and economic growth has been sluggish.

Policymakers who set interest rates for the 20 countries that use the euro lowered their key rate by a quarter point, to 3.25 percent. Thursday’s decision came just five weeks after a cut at the bank’s previous meeting, and on a day that a report showed the eurozone’s inflation rate slowing to 1.7 percent in September, falling below the bank’s 2 percent target for the first time in more than three years.

“The disinflationary process is well on track,” Christine Lagarde, the president of the central bank, said at a news conference in Ljubljana, Slovenia.

The rate move was also influenced by weaker-than-expected economic data in the past few weeks. Whether it was the inflation data or surveys of economic activity, “it is the same story,” she said: “It’s all heading in the same direction — downwards.”

After years of trying to force inflation down with high interest rates, central bankers around the world are walking a tightrope as they consider how quickly to cut interest rates. Lowering rates too fast could reignite simmering inflationary pressures, but keeping rates too high for too long risks slowing the economy substantially and inflation becoming too weak.

In recent weeks, policymakers have suggested that rate cuts could be more aggressive as inflation has slowed significantly and economic growth has been lackluster. Last month, the U.S. Federal Reserve cut rates by a half-point, paving the way for quicker or bigger rate cuts in Europe, analysts said. On Wednesday, traders increased their bets that the Bank of England would pick up the pace of its rate cuts after data showed inflation in Britain fell to 1.7 percent in September, below the bank’s 2 percent target.

The European Central Bank’s back-to-back rate cut, the first since 2011, almost had been ruled out a few weeks ago. Policymakers at the bank had emphasized that they would take a cautious approach to cutting rates because of stubbornly high inflation in the services sector, which is stuck at about 4 percent. Traders had been betting that the bank would wait until December to cut interest rates again. But at the beginning of October, Ms. Lagarde said that the latest economic data had made officials more confident that inflation would return to the target “in a timely manner.”

On Thursday, Ms. Lagarde added that the September inflation data, at 1.7 percent, wasn’t anticipated by the central bank or other forecasters. “I think we were all a little bit surprised,” she said.

Inflation in the eurozone is expected to bounce higher over the next few months and then return to the bank’s 2 percent target next year, the bank said on Thursday.

Concerns about the eurozone’s economy are mounting. Recent data has fallen short of the central bank’s projections and consumer spending has not picked up as expected, even as incomes have been bolstered by lower inflation.

“The incoming information suggests that economic activity has been somewhat weaker than expected,” Ms. Lagarde said.

The manufacturing industry has continued to contract, the services sector was sluggish, businesses were investing slowly, housing investment was falling and exports have weakened, she said.

Business activity in the eurozone contracted in September, according to surveys of purchasing managers, with the region’s biggest three economies — Germany, France and Italy — shrinking simultaneously for the first time this year.

Rate cuts at back-to-back meetings send a signal that the concerns of E.C.B. officials “are shifting from inflation to growth,” Matthew Landon, a strategist at JPMorgan, said in a note.

At the moment, central bankers are tentatively heading toward the rates that they believe will neither restrict nor boost their economies and keep inflation stable at 2 percent over the medium term. Many economists expect this rate to be around 2 or 2.5 percent.

“We are not pre-committing to a particular rate path,” Ms. Lagarde said, reiterating her previous statements. The central bank’s next rate decision will be in December. Traders widely expect another cut in December and at the subsequent four meetings.