The European Central Bank (ECB) reduced interest rates on Thursday, lowering the deposit rate from 3.0% to 2.75% in a widely expected move. The decision marks the ECB’s fifth rate cut since June, as policymakers aim to support the euro zone’s fragile economic recovery while keeping inflation in check.
Despite recent signs of economic improvement, growth remains weak, and inflation continues to hover just above the ECB’s 2% target. The central bank also trimmed borrowing rates, cutting the one-week lending rate to 2.90% and the overnight rate to 3.15%.
ECB officials signalled that further easing remains an option, reinforcing their confidence that inflation is under control. However, uncertainties in global trade could complicate the path ahead.
Bryan Conway, Director at Centrus, commented: “After cutting the Deposit Facility rate from 4% to 3% in 2024, it will not come as a surprise to market commentators to see the ECB cut rates further by 25bp to 2.75% – marking its first rate cut of the year.
“This decision aligns with market expectation and reflects confidence in achieving the 2% inflation target in 2025.
“Key economic indicators, including stable employment rates at 6%-6.5% level and improving manufacturing PMI’s, supported the move – while GDP has remained sluggish.
“This may be the first cut of the year, but certainty won’t be the last with markets forecasting up to four further cuts this year. However, uncertainty looms over the US-EU trade policy and markets remain wary of the potential headwinds to European growth should the US follow through on proposed tariff increases for EU goods.”
Today’s ECB rate cut follows the US Federal Reserve’s recent decision to hold interest rates steady.
