MNI ECB WATCH: Cuts 25BP, Direction No Longer Clear
MNI (FRANKFURT) - The European Central Bank as expected cut its benchmark Deposit Rate by 25 basis points on Thursday for a fifth consecutive meeting, bringing it to 2.5%, but President Christine Lagarde acknowledged that the future path of policy is now much less clear.
“The landscape is clouded with uncertainty, it will require that we will be vigilant. We will have to be agile to respond to the data,” she said, adding that the rates decision at the next meeting in April will depend on how data evolves.
The ECB also adjusted its language on monetary policy restrictiveness, stating that policy is now “becoming meaningfully less restrictive.” (See MNI SOURCES: ECB Likely To Tweak Language, Keep "Restrictive")
Lagarde described this change as an “evolutionary move” rather than an “innocuous little change,” when asked about the significance of the altered language and whether it meant there was a chance of pausing the rate-cutting cycle in April.
She emphasised that there had been a lively discussion within the Governing Council, though the final decision reflected broad consensus, despite an abstention by Austria’s central bank governor, Robert Holzmann.
Given the exceptional uncertainty stemming from geopolitical and trade tensions, the ECB will stick to its meeting-by-meeting approach more than ever. “The situation is not black and white, not straightforward,” Lagarde said, regarding future policy decisions.
HIGHER 2025 INFLATION
The ECB slightly raised its inflation outlook for 2025 compared to its December projections, and now expects 2.3%, while maintaining the 2026 forecast at 1.9%. The 2027 inflation projection was revised slightly lower to 2.0%. (See MNI SOURCES: ECB To Revise 2025 Inflation Slightly Higher)
The upward revision for 2025 was attributed to “stronger energy price dynamics,” though Lagarde noted that this trend has since reversed.
“If you look at oil and gas today, the impact would be very much different,” she said.
The ECB downgraded its growth projections once again, and now expects GDP to expand by just 0.9% in 2025 and 1.2% in 2026. However, Lagarde stressed the need to monitor the impact of fiscal measures, particularly increased defence spending, which could provide some upside risks to growth and inflation.
The details of how and when spending is enacted will be key, she said.
Asked about any potential move to seize Russian assets held in Europe’s jurisdiction, Lagarde said that that was not for the ECB to debate but stressed the importance of respecting international law.
"I would certainly submit that the international law basis on which any decision is made will matter as far as other investors are concerned and I am sure it is an element that will be taken into account by those whose job it is to make those ultimate decisions," she said.