As expected, the European Central Bank (ECB) has again cut interest rates by 0.25 percentage points to 2.75 percent. This is the fifth consecutive rate cut aimed at promoting economic growth in the eurozone. Despite inflation remaining relatively high in some countries, the ECB remains convinced that inflation is on track to reach its 2 percent target.
Promote economic growth despite inflation risks
With the new interest rate cut, the European Central Bank hopes to support the weak European economy. According to economist Han de Jong, the situation in the eurozone is significantly different from that in the United States, where the economy is growing more strongly.
Although inflation is still relatively high in some parts of Europe, the European Central Bank says the disinflation process is proceeding according to plan.
“Inflation has developed broadly in line with our forecasts,” the central bank said in a press release.
However, the ECB recognises that wage and price developments adjust to the inflation environment with a lag. However, the bank expects wages to increase more slowly in the long term and companies to use their profits to reduce inflationary pressures.
Uncertainty about further interest rate cuts
It remains uncertain whether the European Central Bank will make further interest rate cuts. Several ECB politicians have stated in the past that they aim for a “neutral interest rate policy” in which the interest rate is in line with inflation.
Inflation in the eurozone is currently at 2.4 percent, just below the interest rate of 2.75 percent. Last year, the European Central Bank was expected to make four more interest rate cuts in 2025, but with the current inflation figures, it is unclear whether this forecast is correct.
American interest rate policy influences the ECB strategy
An important factor in European interest rate policy is the stance of the Federal Reserve (Fed) in the United States. This week it decided to leave interest rates unchanged, with a current range of 4.25% – 4.5%.
According to economist Han de Jong, maintaining a tight monetary policy in the US could limit the ECB’s room for maneuver. Speaking to BNR, he said: “If the Fed does not cut interest rates at all this year, another rate cut by the ECB could weaken the euro. This could fuel inflation again through higher import prices.”
Although the ECB’s current policy is geared towards economic growth, the balance between controlling inflation and cutting interest rates remains a delicate game. It remains to be seen whether the interest rate will continue to fall in the coming months or whether the ECB will press the pause button to prevent the euro from coming under pressure.
- Rising copper price is a bullish signal for Bitcoin - February 7, 2025
- Trade war between the US and China escalates: Chip market in the crosshairs - February 7, 2025
- Crypto market in panic: XRP price falls by 25% due to profit-taking - February 7, 2025