The reduction, to 3.5 percent from 3.75 percent, comes as inflation has slowed and the bank faces pressure to bolster the region’s flagging economy.

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.

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.

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.