The European Central Bank (ECB) has cut interest rates for the third time this year, lowering its deposit facility rate to 2.5% and signaling that monetary policy is becoming “meaningfully less restrictive”. The move, which markets had widely priced in before the announcement, aims to stimulate economic growth in the eurozone region.
According to ECB President Christine Lagarde, the rate cut will make new borrowing cheaper for firms and households, boosting loan growth and supporting economic expansion. However, the bank’s decision has been interpreted as a hawkish shift, with analysts pointing to a potential pause in future rate cuts.
The ECB’s language on monetary policy has shifted from describing it as “restrictive” in January comments to now characterizing it as becoming less restrictive. This change is seen as an indication that policymakers are becoming more cautious about further rate cuts and may be prepared to hold rates steady at the next meeting in April.
Despite concerns over global trade tensions, including those related to US President Donald Trump’s aggressive tariff policy, the ECB remains optimistic about the region’s economic outlook. Staff projections suggest headline inflation will average 2.3% in 2025, with economic growth forecast to remain stable.
However, the central bank has revised its economic outlook downward, citing “continued challenges” and lower exports. The ECB is now expecting 0.9% growth in 2025, 1.2% for 2026, and 1.3% for 2027, a decrease from previous projections.
The rate decision comes as European countries are looking to boost defense spending, which could impact key economic markers like inflation and growth. The ECB’s Lagarde emphasized the importance of being data-dependent in making monetary policy decisions, refusing to commit to holding rates steady at the next meeting.
Source: https://www.cnbc.com/2025/03/06/european-central-bank-interest-rate-decision-march-2025.html