The expected cut brings the key deposit rate to 3.5 percent and is aimed providing further relief to households and businesses in the eurozone, which includes Estonia.

The rate was already cut by the same amount in July.

The ECB's board made the new decision on Thursday this week.

The bank also opted to reduce the deposit facility rate, a tool through which the bank steers monetary policy, by 25 basis points.

This followed an updated assessment of the inflation outlook, underlying inflation dynamics, and the effectiveness of monetary policy transmission, the ECB said, which makes it "appropriate to take another step in easing the restrictive course of monetary policy."

"Recent inflation data has generally met expectations, while the ECB experts' latest outlook confirms the previous inflation forecast," the bank added via a press release.

According to ECB projections, average overall inflation is expected to be 2.5 percent in 2024, 2.2 percent in 2025, and 1.9 percent in 2026, in line with the June forecast.

The ECB also noted that inflation is likely to accelerate again toward the end of this year, partly due to the previous sharp drop in energy prices falling out of the annual inflation rate calculation.

Afterward, inflation is projected to decline in the second half of next year.

The ECB noted that inflation in the euro area remains high due to the continued rapid pace of wage growth. However, labor cost pressures are easing, and profits are partly mitigating the impact of wage growth on inflation.

"Financing conditions remain restrictive, and economic activity remains subdued, reflecting sluggish consumer spending and investment. ECB experts project that the economy will grow by 0.8 percent in 2024, 1.3 percent in 2025, and 1.5 percent in 2026. Compared to the June forecast, this represents a slight downward revision, primarily due to lower domestic demand over the next few quarters," the central bank reported.

Raul Eamets: The ECB made a decision which was expected by the markets

Thursday's decision by the ECB Governing Council was eagerly awaited by the markets, said Bigbank's chief economist Raul Eamets said.

"The six-month Euribor has already fallen below 3.3 percent. On the one hand, inflation has come down — eurozone inflation in August was 2.2 percent — on the other hand, wage pressure continues — wages grew by 4.3 percent in the second quarter," Eamets said.

"The European economy as a whole is stagnant, and lower interest rates are urgently needed to stimulate investment," he went on.

In this context, Eamets said, it was logical to lower the key interest rate by 0.25 percentage points, as had already happened in July.

It also means that another rate cut can likely be expected this year, so by the end of the year, the six-month Euribor could reach around 3 percent. "This is undoubtedly good news for all of our borrowers," he added.

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