Financial and Monetary Systems

European Central Bank cuts interest rates, and other economics stories to read this week

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Headquarters of European Central Bank in Frankfurt (Main), Germany in the heart of the European Union.

The European Central Bank has cut interest rates. Image: Unsplash/Christian Lue

Joe Myers
Writer, Forum Agenda
  • This weekly round-up brings you the latest news from the world of economics and finance.
  • Top economy stories: ECB cuts interest rates; US high-yield bond funds attract $5 billion in inflows; Bank of Canada also cuts rates.

1. European Central Bank cuts interest rates

The European Central Bank (ECB) has cut interest rates by 25 basis points, lowering its deposit rate to 3.75%. This had been at a record high and saw the ECB joining the likes of Canada, Sweden and Switzerland in lowering rates.

However, the bank wasn't to be drawn on any further moves.

"Interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission," it said in a statement. "The Governing Council is not pre-committing to a particular rate path."

The caution is likely to be a result of an updated projection for inflation for 2025, from 2.0% to 2.2%, reports Reuters.

Eurozone inflation and ECB interest rates
Eurozone inflation and ECB interest rates. Image: Reuters

2. US high-yield bonds see strong month in May

US high-yield bond funds saw their biggest inflows of 2024 so far in May as a result of higher yields, potential price gains from expected Federal Reserve rate cuts, and reduced corporate credit risks.

High-yield bond funds attracted $5 billion in inflows in May, according to LSEG Lipper data. Across January to May, inflows reached $6.1 billion – the highest in three years.

"Combined with the attractive outright yields available, compared to 5- and 10-year averages, we are seeing investor confidence that strong corporate profits, together with an easing Fed, should provide an environment for default expectations to decrease," Chris Romanelli, portfolio manager at Loomis Sayles, told Reuters.

Flows into US high yield bond funds
Flows into US high yield bond funds. Image: Reuters

3. News in brief: Stories on the economy from around the world

The Bank of Canada has cut its key policy rate by 25 basis points. It's the bank's first interest rate cut in four years, lowering the rate to 4.75%.

Eurozone business activity expanded at its quickest in 12 months in May, with growth in services outpacing a contraction in manufacturing.

Australian gross domestic product grew 0.1% in the first quarter, with annual growth dropping to 1.1% from 1.5% in the previous quarter.

US job openings fell more than was expected in April. It comes as inflation, measured by the personal consumption expenditures index, rose 2.7% in April – the same pace as in March.

The UK construction sector saw its biggest rise in activity in two years in May.

China's exports rose in May, the second straight month of growth, with outbound shipments jumping 7.6% year-on-year in value. Imports increased at a slower 1.8% pace – down from an 8.4% increase the month before.

South Korea's economy was around 7% larger in 2023 than had been previously estimated, according to new figures from the central bank.

A private sector survey in China has shown services activity expanding at its quickest pace in 10 months, alongside staffing levels expanding for the first time since January.

Canada's merchandise trade deficit fell to C$1.05 billion in April, with energy and gold helping exports grow more quickly than imports.

Emerging markets (EMs) attracted foreign portfolio inflows for a seventh straight month in May, according to the Institute of International Finance.

Emerging market portfolios see $5.5 billion inflow in May
Emerging market portfolios see $5.5 billion inflow in May. Image: Reuters

4. More on finance and the economy from Agenda

More than two billion people work in the informal economy, but what exactly is it? This explainer outlines the economic activities it does – and doesn't – support, exploring the role it plays in gender inequality.

This article, the first in a planned series of Dialogues on National Security and Economic Cooperation, explores key insights from the discussion on the evolving nature of international economic cooperation and national security.

Marking World Environment Day, this piece outlines three pillars for mobilizing nature finance for the transition towards a nature-positive global economy.

Related topics:
Financial and Monetary SystemsEconomic Growth
1. European Central Bank cuts interest rates2. US high-yield bonds see strong month in May3. News in brief: Stories on the economy from around the world4. More on finance and the economy from Agenda

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