The profitability of Europe’s top banks hit a record high just as the European Central Bank cut interest rates for the first time in almost five years.

With inflation subsiding, the European Central Bank is cutting its benchmark interest rate to prop up tepid growth with lower borrowing costs for companies and home buyers.

The European Central Bank is expected to cut interest rates on September 12 due to falling inflation and sluggish growth. Analysts predict a 25 basis point reduction in the deposit rate. Further cuts may follow in December and throughout 2025,

ECB chief Christine Lagarde said that progress was being made in the fight against inflation, which was on a 'declining path,' But warned that the battle was far from over, with inflation likely to tick up again later this year.

European shares closed higher on Monday as a soft business activity reading strengthened the case for more monetary policy easing by the European Central Bank this year, with rate-sensitive sectors such as real estate and utilities rising.

A shock decline in the euro zone’s main survey of the private sector economy just gave the European Central Bank a reason to speed up interest-rate cuts — at least in the eyes of investors.