(Reuters) – The European Central Bank (ECB) announced on Thursday a reduction of 25 basic points of its main key rate to 2.5% and published its new economic forecasts.
“The disinflation process is on the right track,” wrote the ECB in the press release accompanying its decision.
“Monetary policy becomes significantly less restrictive,” adds the ECB, a notable change compared to its previous statements, according to which monetary policy was “restrictive”.
This change in terminology suggests that a new decline in April is not certain, some monetary policy officials already arguing for more caution.
“The change in terminology of the press release shows that our approach becomes more evolving,” said Christine Lagarde, president of the ECB, during a press conference.
The manager has indeed highlighted the uncertainty “enormous” and “ubiquitous” which limits the investments of economic actors and strengthens the dependence on the data of the Central Bank.
“If the data suggests that a drop in rates is appropriate, we will lower the rates. We will take a break if the data suggest,” said the president of the ECB.
Thursday’s decision made consensus but Robert Holzmann, governor of the National Bank of Austria, abstained during the vote, revealed Christine Lagarde.
Forecasts
In its new forecasts, the ECB has revised the fourth time to decrease gross domestic product (GDP) for 2025, to 0.9% against 0.7% over the year 2024. In 2026, growth was expected at 1.2% and 1.3% in 2027.
“Decreased revisions for 2025 and 2026 reflect a slowdown in exports and continuous weakness of investments, notably coming from a strong uncertainty concerning economic policy in the broad sense, and trade policy in particular,” explains the ECB.
Inflation for this year is expected at 2.3% against 2.1% projected three months ago, which reflects “a more sustained dynamic of energy prices”, explains the central bank.
These projections have however been arrested before the many announcements of the past few days, such as the vast European investment plan in the defense or the risks of a trade war with the United States, and which could influence the economic trajectory.
The markets are now betting on two new rate drops this year.
DEFENSE
The institution was also questioned on the plan of “rearmament” presented Tuesday by the European Commission, which aims to mobilize 800 billion euros to strengthen the capacities of twenty-seven in terms of defense.
Stressing that it was still too early for the ECB could take a more precise analysis, Christine Lagarde recognized that an increase in defense and infrastructure spending could support inflation and growth in the European Union.
These investments could also have an impact on productivity, added the manager.
Christine Lagarde has also defended the effectiveness of the transmission of monetary policy despite the sharp increase in yields in recent days, triggered by the hopes of a higher debt in Germany and Europe.
“The ECB will not change its monetary posture in response to short -term market movements,” said the manager. “The yields have increased sharply but the rate differences (between countries in the euro zone) have remained contained”.
(Written by Balazs Koranyi and Francesco Canepa, Corentin Chappron, edited by Augustin Turpin and Blandine Hénault)
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