Business
ECB Signals Dovish Shift: Rate Cuts Expected
In a significant shift towards a more accommodative monetary policy, the European Central Bank (ECB) has recently implemented a quarter-point interest rate cut, bringing its key deposit facility rate down to 3%. This move signals expectations of further reductions on the horizon, with money markets forecasting a dip to 1.75% by September next year. The central bank’s understanding of its “neutral rate” remains ambiguous, though estimates place it between 1.75% and 2.5%, fueling speculation over potential cuts below this threshold to bolster economic growth as inflation trends downward. According to the ECB’s latest projections, headline inflation is set to be slightly above target at 2.1% in 2025, with the possibility of it falling below that mark later in the year. During the most recent policy meeting, officials struck a cautious tone, acknowledging the downside risks to eurozone growth while underscoring the ongoing challenge of managing inflation, particularly in the services sector. ECB President Christine Lagarde highlighted that while there have been improvements in inflation, the situation is not fully resolved. Additionally, Robert Holzmann, usually considered a hawk on the council, indicated there would be little risk in pursuing further rate cuts if the economy progresses as expected. This dovish pivot suggests the ECB may be compelled to take additional measures to support a struggling economy, with some analysts predicting rates could fall as low as 1.5% by the end of 2025.
