MNI ECB WATCH: ECB Cuts 25BP, Drops Restrictive Language
MNI (ROME) - The European Central Bank said it was cutting its benchmark Deposit Rate by 25 basis points on Thursday for a third consecutive meeting and dropped a reference in its statement to keeping rates sufficiently restrictive for as long as necessary to achieve its inflation target.
While the ECB will continue to set policy on a data-dependent, meeting-by-meeting basis, the direction of policy is clear and its rate-cutting journey has not ended, President Christine Lagarde told a news conference in answer to a question from MNI.
The Governing Council unanimously agreed that a 25 basis-point cut was the right decision, though some members did propose 50bp, and this was discussed, Lagarde said. (See MNI SOURCES: ECB Heads For 25BP Cut; Risks From Trump, Germany )
Still, the ECB cannot declare victory in containing inflation, though it is “really on track” for reaching its 2%” target in its projections, she said.
The ECB slightly lowered its inflation outlook for 2024 and 2025 compared to its September projections, to 2.4% and 2.1%, and kept 2026 at 1.9% in. The inflation projected for 2027 was 2.1%.
Inflation risks remain balanced, with a weaker economy pushing to the downside and geopolitics, trade and higher-than-expected wage growth to the upside.
SLOWER GROWTH
ECB staff see the economy recovering even more slowly than envisioned in September, with growth in 2024 seen at 0.7% and 1.1% in 2025, while risks remain to the downside, Lagarde said. For 2026 and 2027, growth was seen at 1.4% and 1.3%, respectively.
The euro area economy is slowing after modest strength in recent quarters, Lagarde said. While the labour market remains resilient, Lagarde said, there were some signs of easing, despite unemployment at a record low 6.3%. The job availability ratio fell to 2.5%, down 0.8 percentage point from its recent high. (See MNI ECB WATCH: ECB To Cut, Likely To Change Language )
The projections did not incorporate any potential disruption to world trade resulting from policy moves by the incoming U.S. administration of President-elect Donald Trump, Lagarde noted.
“Restrictions on trade or protectionist measures have an impact on inflation that is uncertain,” she said, adding that the next few months will be crucial both for world trade and for eurozone politics.
The ECB also dropped a reference to keeping rates restrictive from its statement.
Asked about the neutral rate of interest, Lagarde again referred to an ECB paper published in early spring 2024 that looked at the theory behind 'r*' but said there have been no discussions in recent days about determining the level of this metric. (See MNI SOURCES: ECB Closer To Dropping "Restrictive" Language)
Lagarde said that she will give more details on the ECB’s view of neutral in an speech on Monday in Vilnius.