The European Central Bank (ECB) cut interest rates for the fourth time this year, lowering the deposit rate to 3% from 3.25%. The move comes as concerns over political instability in Europe and potential US trade tensions continue to weigh on the economy.
Despite inflation worries largely fading, policymakers are worried about whether the ECB is cutting rates fast enough to support an economy struggling to keep pace with global peers. President Christine Lagarde described the economic outlook as “uncertainty in abundance” and signaled that further policy easing may be necessary.
The ECB removed a reference to keeping interest rates restrictive, which economists saw as a sign that more rate cuts are coming. However, Lagarde warned that domestic inflation remains high and victory over excessive price growth is not yet complete. She emphasized that the room for further cuts could be limited.
Financial markets remain optimistic about future rate cuts, with investors expecting at least one 50 basis point cut in January and potentially more beyond June. The ECB’s guidance suggests that rates may fall to the neutral level, which stimulates neither growth nor slows it down.
The economic projections predict slower growth than expected, with recovery both shallow and delayed. Policymakers argue that a 50 basis point move could prevent economic growth from falling below 1% next year if punitive tariffs are imposed as Trump has threatened.
Source: https://www.reuters.com/markets/europe/ecb-cut-rates-again-signal-further-easing-growth-falters-2024-12-11