The ECB cut its benchmark deposit rate by 25 basis points to 3.0%, while the interest rate on its main refinancing operations fell to 3.15%.
The ECB has already cut rates at three of its last four meetings. Nevertheless the debate has shifted to whether it is easing policy fast enough to support an economy that is at risk of recession, facing political instability at home and the prospect of a fresh trade war with the United States.
Eurozone inflation came in at 2.3% in November, marginally above the ECB’s 2.0% target, but the central bank’s fresh projections are likely to show inflation back at target in a few months’ time.
At the same time, economies within the region are barely growing, with gross domestic product rising 0.4% in the third quarter, according to data released earlier this month, while political turmoil in France and Germany’s upcoming election add to the uncertainty.
Additionally, the election of Donald Trump as the incoming US president raised the possibility of a trade war, as he has previously threatened the bloc with high tariffs, particularly on the auto industry.
With this all in mind, investors see a cut at every meeting in 2025 until June, followed by at least one more move in the second half of 2025, taking the deposit rate to at least 1.75% by year-end.
The Swiss National Bank cut its key interest rate by 50 basis points earlier Thursday, as it attempted to tackle a strong Swiss franc as well as depressed inflation.
Source: Economy - investing.com
