European Central Bank - Business Outrank

The European Central Bank has reduced the interest rates by 25 basis points in the deposit facility rate to 2.5%. This is yet another step towards easing of monetary policy as the ECB said that financial conditions are ‘clearly’ moving towards the ‘less restrictive path’. The move was expected and ECB President Christine Lagarde has indeed stated that the decision was taken after extensive discussions among the Governing Council members. The ECB’s latest cut comes in the context of a series of rate reductions over the past nine months as the Eurozone struggles with feeble economic growth and the lingering problem of inflation. Inflation had decelerated to 2.4% in February, but the ECB pointed out that domestic inflation is still high. Nonetheless, the policymakers are wary of further cuts; analysts have forecast more cuts in April and June and a possible break in July. The market reactions were almost instant; the euro rose against the dollar, and Eurozone government bond yields increased. The ECB also revised its economic outlook, revising up growth projections of 0.9% in 2025 and 1.2% in 2026. The decline in exports, which was previously attributed to base effects, has now been compounded by trade policy uncertainty. A major risk is trade tensions, including the risk of US tariffs on EU goods. Lagarde stressed that geopolitical instability including the war in Ukraine and the conflicts in the Middle East are still a threat to economic stability. The ECB’s strategy is still data-dependent, and the policymakers will use economic indicators to decide on future rate decisions.

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