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The European Central Bank warned against the “winds” to the stagnant economy of the euro zone while it reduced its reference rate of a quarter to 2.75%.
Thursday’s unanimous decision, which takes the ECBThe rate of deposit of its lower level since the beginning of the 2023, occurred a few hours after Eurostat said that the economy of the euro zone had not increased at all in the fourth by 2024.
The president of the ECB, Christine Lagarde, warned that the economy should “remain small in the short term”, adding that the surveys have underlined a continuous contraction of manufacturing even as the services increase. “Consumer confidence is fragile,” she said.
It argued that economic risks were “tilted downwards” because greater friction for world trade could weigh on the economy of the euro zone, while the lowest confidence could be a training in investment and consumption.
In a press release accompanying the decision, the ECB argued that the drop in inflation, which went from a peak of 2022 from 10.6% to 2.4% in December, was “well on the right track”, While noting that “the economy is always confronted with the opposite winds”.
The central bank has added that “monetary policy remains restrictive” – recognition that interest rates are always higher than the neutral rate that does not stimulate or retain the economy.
The euro has strengthened following the widely awaited drop, up 0.2% compared to the day against the dollar.
The ECB has now reduced the prices five times since last summer and in the trade immediately after the decision, the trade markets were prices in two or three reductions of more than a quarter of a point by the end of the ‘Year, unchanged earlier during the day.
“We had that economic data will continue to push the ECB to reduce to each meeting until the deposit rate reaches 1.5%,” said Tomasz Wieladek, European economist of the T Rowe Price asset manager .
He quoted the threat to economic growth in the euro zone posed by the pricing plans of American president Donald Trump and the expected decline in inflation later in the year.
Lagarde said that the BCE board of directors had had no discussion “on the point where we have to stop [cutting interest rates]At his meeting on Thursday.
“We know the direction of the trip, this is the direction we will take,” she said, adding that the sequence, the pace and the extent of the additional cuts will be determined by the data.
The central bank only predicts a slight acceleration of growth of 0.7% for last year as a whole at 1.1% this year.
On Thursday, the ECB reiterated that “the effects that gradually discolor the restrictive monetary policy should support a request in demand over time”, highlighting an increase in real income and a drop in borrowing costs.
Contrary to the slow progress of the euro zone, the US economy Extended to an annualized rate of 2.8% in the third quarter of last year.
The ECB’s decision also one day after the American federal reserve kept the pending rates.
The expectations of investors that this will reduce the rates more than the Fed this year has weakened the euro, which has come closer to the parity of the dollar.
“Currently, the question is not whether the ECB will continue to reduce interest rates this year, but by how much,” wrote Ulrich Kater, chief economist in Dekabank, in a note to customers.
In a passage compared to the previous feature language, in December, the ECB abandoned a commitment to “maintain the rate of policy sufficiently restrictive as long as necessary” to reduce inflation in accordance with its 2%objective.
