Jamie Spencer
ECB-Cuts-Rates-Signals-More-Easing-in-March
The European Central Bank (ECB) cut interest rates on Thursday and signaled another reduction in March as concerns over economic stagnation outweigh persistent inflation fears. This marks the fifth ECB rate cut since June, with markets anticipating two or three more cuts in 2025.
ECB Stays on Easing Path
ECB President Christine Lagarde emphasized that future rate cuts will be guided by economic data. “We know the direction of travel,” she said, but noted that the timing and magnitude of future cuts will depend on upcoming economic indicators.
According to Reuters, three ECB policymakers anticipate a March rate cut without major resistance, though debates over further easing may become more contentious. The eurozone economy stagnated in the last quarter, driven by an industrial recession and weak consumption, reinforcing the ECB’s commitment to further easing.
Lagarde Warns on Trade Tariffs
Lagarde also addressed concerns over potential U.S. trade tariffs under President Donald Trump, warning that such measures could negatively impact global economic growth. However, she acknowledged the complexity of their potential inflationary effects due to retaliatory measures and market adjustments.
Rate Cuts and Neutral Range
A further cut in March would bring the ECB deposit rate to 2.5%, at the upper end of the estimated neutral range—a level that neither stimulates nor slows economic activity. Policymakers expect a broader debate over whether borrowing costs should fall below this threshold.
ECB Board Member Isabel Schnabel has already suggested that rates could be reduced further. Lagarde, meanwhile, announced that a new ECB staff estimate of the neutral rate will be published on February 7, which could influence future policy decisions.
Economists Expect More Cuts
Despite easing wage growth, falling oil prices, and a stabilizing dollar, inflation remains above the ECB’s 2% target. Poor productivity growth and labor shortages could sustain inflationary pressures, limiting how far the ECB can lower rates.
Investment bank Nomura expects the ECB to push rates below the neutral level to 1.75% by September 2025, with potential for further cuts if U.S. tariffs escalate.
With a sluggish economy and inflationary risks, the ECB appears committed to its rate-cutting cycle. However, future moves will depend on economic data and the impact of geopolitical uncertainties, particularly trade tensions with the U.S.
