The European Central Bank (ECB) cut interest rates by 25 basis points for the second time, and the market has already digested this expectation, showing no significant reaction.

At 20:15 Beijing time on Thursday, the ECB cut interest rates by 25 basis points for the second time, reducing the deposit facility rate from 3.75% to 3.50%, the lowest since June 2023, in line with market expectations.

The main refinancing rate was reduced from 4.25% to 3.65%, as expected.

The marginal lending rate was cut from 4.50% to 3.9%, as expected.

The ECB stated that lower inflation and economic growth have allowed it to slightly ease its tight monetary policy.

This is the second rate cut by the bank in three months, signaling a gradual normalization of the ECB's policy.

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The ECB did not explicitly hint at further rate cuts in October and noted that "inflation within the region remains high."

However, the bank added that "labor cost pressures are easing, and profits are partially cushioning the impact of wage increases on inflation."

The bank stated that it will continue to adopt a data-dependent policy, making decisions on a meeting-by-meeting basis, and will keep interest rates at a sufficiently restrictive level as needed.

The ECB updated its outlook for key economic data for 2024: GDP growth is expected to be 0.8% in 2024, 1.3% in 2025, and 1.5% in 2026 (June expectations were 0.9%, 1.4%, and 1.6% respectively).

Inflation is expected to be 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026 (June expectations were 2.5%, 2.2%, and 1.9% respectively).

Core inflation is expected to be 2.9% in 2024, 2.3% in 2025, and 2.0% in 2026 (March expectations were 2.8%, 2.2%, and 2.0% respectively).

After the ECB announced its interest rate decision, the euro rose against the US dollar by more than ten points in the short term.

Traders reduced their expectations for ECB rate cuts, expecting another 36 basis points cut before the end of the year.

The vast majority of economists still believe that the reduced deposit rate level is restrictive and may suppress economic activity.

The money market expects that there will be several more rate cuts of the same size by June 2025, keeping the deposit rate at a level of 2.0% or 2.25%.

Danske Bank's ECB observer, Piet Haines Christiansen, stated that the ECB has shown a cautious attitude towards further rate cuts.

At this stage, it seems appropriate for the bank to cut rates by 25 basis points every quarter.

Regarding the level of inflation, the ECB said that recent inflation data is roughly in line with expectations and showed determination to bring the inflation rate back to 2% in a timely manner.

The bank pointed out that domestic inflation remains high, wages are still rising rapidly, and inflation is expected to rise again in the second half of this year.

Regarding the issue of the larger reduction in the main refinancing rate compared to the deposit rate, the financial website Forexlive interpreted that this is more of a long-standing technical adjustment.

The ECB has been promoting a plan to narrow the gap between this rate and the deposit rate to around 15 basis points, so they are doing just that, mainly to better manage overall market interest rates.

Whether the ECB will cut rates again this year remains to be seen.

Quilter Investors' investment strategist Lindsay James said that compared with other central banks, the ECB has much less room for maneuver, so although further rate cuts in October are not entirely impossible, the ECB will, as always, heavily rely on the data released from now until then.

"Ensuring that inflation continues to move in the right direction, especially further reducing core inflation, will be its top agenda."

Thirty minutes after the interest rate decision was announced, ECB President Christine Lagarde held a press conference on monetary policy.

Lagarde said that inflation is expected to rebound in the second half of the year, wages are still rising at a high speed, and it is appropriate to further moderately ease the tightness of monetary policy.

Lagarde added: "The economic recovery still faces some obstacles, and the risks to economic growth are skewed to the downside.

A slowdown in the restrictive nature of monetary policy should help support the economy."

Regarding the current state of the labor market, Lagarde believes that the labor market in the eurozone is still strong, but surveys show that labor demand is slowing down further.

She called on governments to "take strong measures in fiscal policy, and fiscal and structural policies should aim to increase productivity."

In addition, Lagarde pointed out that "overall labor cost growth is slowing down, unit labor costs will continue to decline, and negotiated wage increases will remain high and volatile."

Lagarde did not pre-commit to the future path of interest rates, stating that the timing and magnitude of the ECB's rate cuts are not predetermined.

There is no pre-commitment of any kind regarding the October meeting.