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The European Central Bank has cut its benchmark interest rate by a quarter-point to 2.75 per cent as it seeks to respond to the Eurozone’s weak growth and falling inflation rates.
The cut came hours after Eurostat reported that the Eurozone economy had not grown at all in the fourth quarter of 2024.
Thursday’s widely expected move, which takes the ECB’s deposit rate to its lowest level since early 2023, also came a day after the US Federal Reserve kept rates on hold, despite President Donald Trump’s calls to lower borrowing costs “a lot”.
The euro was initially unmoved by the ECB decision, down 0.1 per cent against the dollar on the day at $1.041.
The ECB has now cut rates five times since last summer and in trading immediately after the decision, swaps markets were pricing in two or three more quarter-point cuts by the end of the year, unchanged from earlier in the day.
The central bank predicts only a slight acceleration in growth from 0.7 per cent for last year as a whole to 1.1 per cent this year.
By contrast with the Eurozone’s sluggish progress, the US economy expanded at an annualised rate of 2.8 per cent in the third quarter of last year.
Investor expectations that the ECB will cut rates more than the Fed this year have weakened the euro, which has come close to parity to the dollar.
In a shift from previous hawkish language, in December the ECB dropped a commitment to “keep policy rates sufficiently restrictive for as long as necessary” to bring down inflation in line with its 2 per cent target.
Inflation has fallen from a 2022 peak of 10.6 per cent to 2.4 per cent in December.
This is a developing story
