This photo taken on July 27, 2023 shows the Euro sign in Frankfurt, Germany. (Photo/Xinhua)

Frankfurt - The European Central Bank (ECB) on Thursday announced that it would cut key interest rates by 25 basis points.

The interest rate on the main refinancing operations, and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25 percent, 4.5 percent and 3.75 percent respectively, with effect from June 12, the central bank said in a statement.

"Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady," said the ECB.

Although its latest projections point to higher inflation for 2024 and 2025, the ECB said that inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly since September 2023.

The central bank said it is set to "keep policy rates sufficiently restrictive for as long as necessary" to achieve its aim of returning inflation to a 2 percent medium-term target.

Inflation in the euro area has been going up and down over the past few months. It ticked up to 2.6 percent in May from 2.4 percent in April, according to statistics from Eurostat, the European Union's (EU) statistical bureau, released earlier this week.

Looking ahead, the central bank expects inflation to fluctuate around current levels for the rest of the year before declining towards the target level over the second half of next year, standing at 2.5 percent in 2024 and 2.2 percent in 2025 respectively.

The economy in the eurozone will grow by 0.9 percent in 2024, 1.4 percent in 2025 and 1.6 percent in 2026, predicted the ECB.