European Central Bank cuts interest rate in January, signaling further monetary easing
A woman walks past the headquarters of the European Central Bank (ECB) prior to a press conference on the Eurozone's monetary policy in Frankfurt am Main, western Germany, on Jan. 30, 2025. (AFP Photo)
The European Central Bank (ECB) lowered interest rates Thursday by 25 basis points amid cooling inflation and stagnant economic growth in the eurozone while keeping a cautious watch on U.S. President Donald Trump’s protectionist policies.
The central bank cut its benchmark deposit rate by a further quarter point to 2.75% on Thursday, its fifth reduction since June last year and a move widely expected by observers.
The ECB had previously hiked borrowing costs aggressively to tame runaway energy and food costs but is now bringing them back down as price rises slowly and the eurozone economy falters.
‘Direction of the travel’ signals monetary easing
European Central Bank President Christine Lagarde said policymakers were clear about the “direction of travel” for borrowing costs in the eurozone after cutting interest rates again on Thursday.
“We have not had a discussion, because it would be premature at this point in time, about the point where we have to stop,” Lagarde said at a press conference. “We know the direction of travel.”
A recent uptick in inflation—which rose to 2.4% in December, above the ECB’s 2% target—has caused some jitters. But policymakers believe price pressures will ease during 2025, and their focus has shifted to relieving the strain on the beleaguered 20-nation eurozone.
Data released before the ECB’s meeting showed the eurozone economy registered zero growth in the final quarter of 2024, dragged down by contractions in heavyweights France and Germany, despite expectations for a slight expansion.
In a statement announcing its latest decision, the Frankfurt-based ECB said the process of bringing inflation down was “well on track” and the figure should return to the 2% target “in the course of this year.”
It conceded that the economy was “still facing headwinds,” but added that “rising real incomes and the gradually fading effects of restrictive monetary policy should support a pickup in demand over time.”
The ECB reiterated it would make its decisions based on incoming data and that it was not “pre-committing to a particular rate path.”
The ECB’s decision stands in contrast to the latest move by the US Federal Reserve. The central bank in the United States, whose economy has been outpacing the eurozone’s, on Wednesday left its key lending rate unchanged and said it was in no “hurry” to make changes, despite pressure from Trump for more cuts.
