(Reuters) - The European Central Bank cut rates for the first time in five years on Thursday, but kept investors in the dark about its next move, given increasing uncertainty over inflation after a sharp slowdown in the past year.
It lowered its record-high deposit rate by 25 basis points to 3.75%, but revised up its inflation forecasts.
MARKET REACTION:
The euro rose to $1.0891 from $1.0866 just before the ECB rate decision. Euro zone bond yields rose, with Germany's benchmark 10-year Bund yield last up 6 basis points at 2.56%, versus 2.53% earlier. Europe's broad stock index pared some gains and was last up 0.5% on the day.
COMMENTS:
MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS, LONDON:
"The ECB moved and followed through on its guidance. They are not committing to further rate cuts and a July move is off the table."
"The focus for markets is whether they will find room to cut in September."
"The ECB revised up their inflation forecasts and I am not surprised. Inflation is proving sticky and that makes it difficult for the ECB to be confident that inflation will come down to target."
"The key comment is that they are not committing to a pre-determined rate path."
DEAN TURNER, CHIEF EURO ZONE AND UK ECONOMIST, UBS GLOBAL WEALTH MANAGEMENT, LONDON:
"Today's widely expected interest rate cut from the ECB will come as a welcome relief to the euro zone economy. The outlook for inflation, as indicated by the ECB's latest projections, point to further interest rate reductions later this year."
"Of course, the timing of the next move from the ECB is uncertain, as this will be dependent upon incoming data. But with the disinflationary process firmly underway, the ECB, along with other central banks, should feel confident enough to ease policy, most likely at a pace of one cut per quarter. Moreover, we should expect this rate-cutting cycle to continue into 2025."
(Reporting by the Reuters Markets Team; Compiled by Dhara Ranasinghe; Editing by Amanda Cooper)
