The Governing Council of the European Central Bank (ECB) cut the key interest rates by 25 basis points for the second consecutive time as it met in Brdo pri Kranju, Slovenia, on 17 October.

The interest rate on the deposit facility, now the benchmark for euro monetary policy, has been reduced to 3.25%, effective from 23 October.

The main refinancing operations rate and the marginal lending facility rate will decrease to 3.40% and 3.65%, respectively.

The Governing Council based the decision for what is a third cut in interest rates since the shift in the ECB's monetary policy in June on updated assessment of the inflation outlook and the strength of monetary policy transmission.

"The incoming information on inflation shows that the disinflationary process is well on track," the ECB said. "The inflation outlook is also affected by recent downside surprises in indicators of economic activity," it added, adding that financing conditions remain restrictive.

Fresh data from Eurostat, the European statistics office, show that euro area inflation slowed to the annual rate of 1.7% in September, the first time since June 2021 that the rate slipped below the ECB's medium-term target of 2%.

The Governing Council expects inflation to rise in the coming months, before declining to target in the course of next year. The council is determined to keep interest rates sufficiently restrictive for as long as necessary to achieve a sustainable return to the 2% medium-term target.

Answering a question, ECB President Christine Lagarde told reporters at Brdo pri Kranju that the ECB has not yet completely "broken the neck of inflation", but is on track to do so. She pointed to food prices, which remain high.

The ECB Governing Council meets outside Frankfurt once a year, this time in Slovenia. Bank of Slovenia Governor Boštjan Vasle noted trust in the single currency is the highest in Slovenia among all euro countries, and he believes the decisions taken will further strengthen this trust.

In her address to a dinner hosted by the Slovenian central bank as part of the meeting on 16 October, Lagarde set Slovenia as an example for Europe of how to overcome challenges.

"While many in Europe are anxious about the future, Slovenians are no strangers to uncertainty," she said, noting that within a single generation, Slovenia made a successful transition from a planned economy to a market economy.

She described Slovenia as a success story, a developed, stable and high-income economy, with the highest GDP per capita at purchasing power parity of central and eastern European countries, while its economy was adapting to new challenges.

Slovenia has undergone remarkable technological change over the past 20 years, while having the second lowest Gini coefficient, a measure of income inequality, in the OECD, and a high level of gender equality, she said.

"Many in Europe are worried about the challenges ahead, such as the effects of artificial intelligence on social inclusion. But we should let Slovenia's example inspire us," Lagarde said.