The European Central Bank (ECB) lowered rates last week, hinting towards a further cut in March. It comes as concerns about sluggish economic growth overshadow ongoing inflation worries.
This is the fifth reduction since June, with the markets expecting two or three additional cuts this year. These reductions are fueled by the belief that the major inflation spike of recent decades is almost under control and the grappling economy requires support.
ECB President Christine Lagarde stated during a press conference after the announcement, “We understand the direction we are heading.” He added, “The speed, sequence, and extent of our actions will depend on the data we gather in the upcoming weeks and months, along with the analysis conducted by our team.”
Three ECB officials who had a conversation with Reuters last week expressed confidence that another rate cut would likely take place in March with minimal opposition.
Although discussions within the Governing Council regarding further easing are expected to intensify. The eurozone economy stagnated in the last quarter because of an industrial downturn and weak consumer spending.
The ECB is expecting to maintain its easing strategy, even as the U.S. Federal Reserve has opted to keep the rates steady and has also suggested a prolonged pause.
It appears that ECB officials felt at ease when the new U.S. administration under President Donald Trump refrained from implementing widespread trade tariffs.
Lagarde noted that the tariffs could have a global negative impact on growth. However, their potential influence on inflation is far more complex because of possible retaliatory measures and market adjustments.
A rate cut in March would bring the deposit rate of the ECB to 2.5%, the upper limit of what it considered a neutral range. According to ECB staff estimates, this range neither stimulates nor hinders economic activity.
Business Journalist
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