ECB cuts rates again as growth weakens
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The news: The European Central Bank (ECB) cut interest rates by 25 basis points to 3%, marking the fourth reduction since June and bringing rates to their lowest since March 2023.
The context: The unanimous decision follows inflation nearing the 2% target and weakening economic forecasts.
The ECB warned that the Eurozone economy would grow 1.1% next year, down from its September estimate of 1.3%.
It also lowered growth forecasts for 2026 and 2027 to 1.4% and 1.3% GDP growth respectively, reflecting risks from global trade frictions, including potential US tariffs under Donald Trump’s presidency.
The central bank for the 20 countries that share the euro removed a reference to keeping rates “sufficiently restrictive” from its monetary policy communications, a move interpreted as a signal of further cuts in 2025.
The numbers: The euro dipped 0.1% to USD1.0485 ($1.64) following the announcement. Economists and markets anticipate further rate cuts.
Swap markets show traders expect the ECB to deliver five additional 25 basis-point rate cuts by next September, lowering the deposit rate to 1.75%, according to Bloomberg.
What they said: “The element which has changed is the downside risks, particularly the downside risks to growth,” ECB President Christine Lagarde said.
She noted that US President-elect Donald Trump’s tariffs — and their potential impact on growth — are not factored into the ECB’s baseline scenario, suggesting the export-reliant Eurozone economy could underperform the central bank's projections if Trump does implement his tariff threats.
The sources: ECB, Th Financial Times , Reuters
