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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%.
The unanimous decision on Thursday, which has been carrying out the deposit rate of the ECB to its lowest level since the beginning of 2023, occurred a few hours after Eurostat said that the economy of the euro zone had not increased at all in the fourth quarter of 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.
The head of the ECB has argued that, even if it was not easy to know if the prices would be inflationary or deflationary, “all that we know with certainty is that he will have a global negative impact” .
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.
Lagarde said that the BCE board of directors had not even discussed the possibility of a half-point cup this month-an option that some economists had hoped until a few ago weeks.
The euro has strengthened slightly after the meeting, up 0.1% over the day against the dollar at $ 1.043.
With the widely scheduled decision on Thursday, the ECB has now reduced the rates five times since last summer. In the trade immediately afterwards, exchanges on the markets were prices in two or three discounts of more than a quarter of a point by the end of the year, unchanged earlier during the day.
“Our opinion is 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 asset manager Price, predicting more reductions than market consensus.
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 with political decision -makers confronted with “significant and probably growing uncertainty”, it was not possible to give advice on businesses.
She added that the board of directors had no discussion “about 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, arguing that the sequence, the pace and the extent of the additional cuts would be based on the data.
It argued that the recent increases in loan costs from the Government of the Euro Zone in the longer term were partly due to market movements in the United States, but insisted that BCE’s reductions would still have An effect on the economy of the euro zone.
Despite the cuts, Germany’s bond yield at 10 years old, a reference for the euro zone, is up almost half a percentage of its hollow from December to 2.51% current. The yields pass in conversely to prices.
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.
“There is recovery. . . We never talked about stagflation, “said Lagarde, noting that last year’s growth had been 2023 and that the labor market was strong.
However, the ECB only predicts a slight acceleration of growth of 0.7% for last year as a whole at 1.1% this year.
Unlike the slow progress in the euro zone, the American economy developed at an annualized rate of 2.3% in the fourth quarter of last year, equivalent to a quarterly rate of approximately 0.6%.
The ECB’s decision one day came 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.
