The European Central Bank has reduced interest rates for the first time in 5 years

The European Union has joined the ranks of economies by lowering its lending rate this week citing progress, in addressing inflation.

The European Central Bank (ECB) announced a decrease in its interest rate from 4% to 3.75%.

Christine Lagarde, the ECBs president noted improvements in the inflation outlook as the rationale behind the rate reduction.

Despite this development Lagarde cautioned that inflation is expected to remain above the banks 2% target into the following year with projections at 2.5% in 2024 and 2.2% in 2025.

During a meeting in Frankfurt on Thursday the EUs rate setting committee opted to rates even though there was an increase in Mays inflation numbers. Inflation climbed to 2.6% up from Aprils 2.4% within the bloc of 27 nations.

Central banks have maintained rates, over the two years to curb rising prices; most aim for an annual inflation rate of around 2%. However elevated interest rates typically put a damper on growth.

Even though the European Central Bank (ECB) started raising interest rates making a cut in June would position it ahead of the U.S. Federal Reserve in its trend given that the largest central bank, in the world is facing challenges due to U.S. Inflation rates. During her press conference Christine Lagarde, the President of the ECB emphasized that ECB officials rely on data than being influenced by the Fed.

Canada took the lead, among G7 nations by reducing interest rates this week marking the beginning of a cycle. Meanwhile both Sweden and Switzerland have already announced their rate cuts this year.