The ECB believes that the process of reducing inflation is evolving smoothly and this year the index will close in the eurozone levels at 2.3%
To a new reduction – sixth in order – of interest rates by 0.25 basis points proceeded today, Thursday, the European Central Bankwith the deposit rate falling to 2.5%.
The ECB believes that the process of reducing inflation is progressing smoothly and this year the index will close at 2.3%in the eurozone.
However, revised downhill the provision for growth rate in the eurozone at 0.9% this year considering that There are risks linked to duties and the apparent decline in exports and investment.
“Monetary policy becomes significantly less restrictive, as interest rates reductions make the new borrowing for businesses and households less expensive and loan growth is accelerating,” the Central Bank said in a statement on Thursday.
Inflation in the eurozone remains below the 3%threshold, despite the rise in the last months of 2024.
Publishers earlier this week showed that inflation in the region fell to 2.4% in February, decreased compared to the corresponding January measurement, but slightly higher than expected. Structural inflation – which does not include the cost of food, energy, alcohol and tobacco – as well as the inflation of services have also retreated.
Meanwhile, seasonally adapted Eurozone GDP increased 0.1% in the fourth quarter of 2024, according to the latest measurement of the Eurostat Statistical Service.
Uncertainty about duties
Thursday’s decision comes as US President Donald Trump is pursuing an aggressive global duty policy and European leaders are seeking to increase defense spending.
Deals to goods imported into the US by Europe have not yet been announced, but Trump is constantly threatening to impose this measure. The impact of any such duties is currently unclear and the possibility of trading may still be on the table.
European countries are also seeking to strengthen their budgets for defense and security, as relations between the US and Ukraine are in tension. An increase in defense spending could affect key economic indicators such as inflation and growth.
Analysts told CNBC that these geopolitical developments could lead to more disagreements than usually within the ECB’s board of directors regarding monetary policy decisions in the coming months.
The ECB’s announcement in detail
The Board of Directors today decided to reduce the ECB’s three main interest rates by 25 basis points. In particular, its decision to reduce the interest rate on the facility of acceptance of deposits – the interest rate by which the Board of Directors gives the direction of monetary policy – is based on its updated evaluation of inflation prospects, the dynamics of underlying inflation and the intensity of the intensity.
The process of diminishing inflation is on the right track. Inflation has continued to evolve in general as experts expected, and the latest views are in line with previous prospects for inflation. Experts now expect that general inflation will be on average at 2.3% in 2025, 1.9% in 2026 and 2.0% in 2027. The general inflation for 2025 upwards reflects more intense potential of energy prices. In terms of inflation without energy and food, experts predict that it will be on average at 2.2% in 2025, 2.0% in 2026 and 1.9% in 2027.
Most of the underlying inflation indicates that inflation will stabilize around the medium -term goal of the Board of Directors for 2% on a sustainable basis. Domestic inflation remains high, mainly because wages and prices in some areas continue to adapt to the previous intense rise in inflation with significant delay. But the rate of wage growth is tempered as expected and the profits partly absorb the impact of inflation.
Monetary policy becomes substantially less contracted, as interest rate cuts make new loans less expensive for businesses and households and the rate of loan growth is accelerating. At the same time, previous interest rates that continue to be broadcast on the outstanding stock of credit are an adverse factor in loosening funding conditions and lending remain overall sluggish. The economy faces continuous challenges and experts reviewed their growth projections again – at 0.9% for 2025, 1.2% for 2026 and 1.3% for 2027. Uncertainty about commercial policy as well as broader uncertainty about economic policy. The rise in real incomes and the gradual weakening of the effects of previous interest rates are still the key factors that support the expected recovery of demand over time.
The Board of Directors is determined to ensure that inflation will be stabilized in a medium -term goal of 2%. In particular, under the current conditions of high uncertainty, there will be an approach based on the available data and will make decisions from a meeting at a meeting to determine the appropriate direction of monetary policy. Specifically, the decisions of the Board of Directors on interest rates will be based on the evaluation of the prospects for inflation in the light of incoming economic and financial data, the dynamics of underlying inflation and the intensity with which monetary policy is transmitted. The Board of Directors is not committed in advance for a specific course of interest rates.
Basic interest rates of the ECB
The Board of Directors today decided to reduce the ECB’s three main interest rates by 25 basis points. Consequently, interest rates of facilitating deposits, main refinancing and marginal funding facility will be reduced to 2.50%, 2.65% and 2.90% respectively, with validity from 12 March 2025.
Purchase Purchase (APP) and Extraordinary Purchase Purchase Purchase Program (PEPP)
The Board of Directors is ready to adapt all the means available within the limits of the mandate assigned to it to ensure that inflation is stabilized in a 2% in the medium term and to preserve the smooth functioning of the monetary policy transmission mechanism. In addition, the Transmission Protection Instrument (TPI) means is available to offset unwanted, naughty market developments that poses a serious threat to transmit monetary policy in all euro zone countries, thereby allowing the Board of Directors to fulfill its efficiency.
Source: Skai
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