ECB cuts interest rates by 25 basis points: What does this mean for savers, investors and the crypto industry?

The European Central Bank (ECB) made an important decision today on June 6 by cutting the three key interest rates by 25 basis points. This move follows a nine-month period in which interest rates remained unchanged. The decision follows an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

Impact on savers and borrowers

Since the Governing Council meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved significantly. This cut in interest rates is intended to moderate monetary policy restrictions and support inflation expectations. Monetary policy has so far kept financing conditions restrictive, which has helped dampen demand and anchor inflation expectations.

Despite this reduction Domestic price pressures remain high, mainly due to strong wage growth, which is likely to result in inflation remaining above target well into next year. The latest Eurosystem staff projections show that both headline and core inflation are expected to rise in 2024 and 2025 compared to previous forecasts. Inflation is now estimated to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.

Consequences for the financial markets

The reduction in interest rates has potential consequences for various aspects of the economy. Savers can expect lower returns on their savings, while borrowers can benefit from cheaper loans. In financial markets, this can lead to a search for returns, with investors moving capital to assets with higher returns, such as shares and real estate.

Influence on cryptocurrencies

For cryptocurrencies such as Bitcoin, this could have a positive impact as investors may seek alternative investments due to lower interest rates on savings accounts. The reduction in interest rates could lead to an increase in risk assets, such as cryptocurrencies. Historically, not only the stock markets, but also the crypto market have tended to rise when expected interest rate cuts.