MNI WATCH: ECB Set To Deliver Fourth Consecutive Rate Cut
MNI (ROME) - The European Central Bank is set to lower its deposit rate by 25 basis points to 2.75% on Thursday, in its fourth consecutive cut, and should also reiterate that its policy direction remains clear and that it will maintain its meeting-by-meeting and data-dependent approach.
Market also expect another 25-basis-point reduction at the following Governing Council meeting in March.
Despite concerns about weaker-than-expected economic growth, there is broad consensus within the Governing Council to continue cutting the deposit rate in 25-basis-point increments, aiming for a level of around 2% later this year. Larger moves remain off the table for now.
RISKS CALL FOR PRUDENCE
But risks stemming from the U.S. in the form of tariffs or fiscal policy, alongside Europe’s own fiscal challenges, are heightening the ECB’s sense of caution. (See MNI SOURCES: ECB Cuts Consensus, But Trump, Fiscal Risks Ahead)
Policymakers continue to wait to gauge the impact on the eurozone of any tariff moves by U.S. President Donald Trump, though these could include rising bond yields and a weaker euro. Attention will be focused on ECB President Christine Lagarde’s communication regarding the central bank's approach, though there seems little chance she could douse hopes for cuts in any similar way to Chairman Jerome Powell at the Federal Reserve’s December press conference.
DIVISIONS ON FUTURE POLICY
Divisions within the Governing Council over the timing of a potential third rate cut in 2025 are unlikely to surface during this meeting, with debate focussing on incoming data and the spillovers from U.S. policies.
Policymakers calculate that potential U.S. tariffs would be more likely to depress European growth than to boost inflation..