MNI ECB WATCH: ECB Cuts 25BP, Says Rates Still Restrictive
MNI (FRANKFURT) - The European Central Bank reduced its benchmark Deposit Rate by 25 basis points to 2.75% on Thursday, its fourth consecutive cut, and left the language in its statement unchanged, expressing confidence that inflation will converge towards its 2% target in 2025.
ECB President Christine Lagarde said that rates remain in restrictive territory, and added that the Governing Council neither discussed when it should stop cutting interest rates or the level of the neutral rate at which monetary policy neither stimulates nor exerts a drag on activity.
“It is premature in this point in time to discuss the point where we have to stop,” she told a press conference, stressing that decisions will be taken on a meeting-by-meeting basis.
The ECB’s decision was unanimous and the Council did not discuss the possibility of a larger cut as it had in its December meeting, she said.
Lagarde, who recently in Davos referred to a lower range of estimates for the neutral rate from 1.75%-2.25%, compared to her previous references to 1.75%-2.5%, said that a revised calculation of the variable made by the ECB’s staff will be released on Feb 7.
The policy statement pointed to risks from disruptions in global trade due to the potential introduction of tariffs by the U.S., which make the inflation outlook “more uncertain”, and Lagarde added that much will depend on the details of where levies are placed and on any retaliation. It is too early to derive clear conclusions regarding the impact of tariffs on inflation, she said. (See MNI SOURCES: ECB Cuts Consensus, But Trump, Fiscal Risks Ahead)
“It is far more complicated than it’s this way or this way. It’s inflationary or deflationary depending on whether there is one set of decisions with variable rates around the world, rerouting of trade, whether there is a retaliation or not,” she said.
Inflation data has been in line with the ECB’s December projections, reinforcing confidence in reaching target in 2025, though further progress is needed on wages and particularly on domestic inflation which remains high.
On growth, Lagarde was confident that conditions for a recovery based on consumption persist and that households will slowly show more confidence in the economy and spend some of their gains in disposable income.
“We are seeing stagnation but not stagflation, because inflation is coming down,” she said.
NO BITCOIN
Asked about recent comments by the Czech National Bank governor about potentially acquiring Bitcoin, Lagarde said she was confident that no central bank which is a member of the ECB’s General Council would hold the cryptocurrency in its reserves.
The ECB’s General Council includes all eurozone national bank members and EU countries.