ECB holds its key interest rate steady at 4% as was expected by the market.
“The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal,” the governing council said in a statement.
“The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction,” it added.
ECB staff lowered their projections for 2024 GDP and inflation to 0.6% and 2.3% from 0.8% and 2.7%, respectively.
“Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages,” the statement pointed out.
Europe has an easier trajectory for inflation.
I would say ECB should cut relatively soon based on how the economy is performing too.
But they are still very worried about inflation risks that who knows, they could make the mistake again of being too slow. In the conference, she said that the consensus was that until June they think they would have sufficient data.
She said almost everything about inflation is moderating except for services inflation, which is labor intensive. So, her main focus currently is wages.
ECB held its key interest rates steady at 4% and signalled that cuts are on the way.
“If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction,” the ECB said Thursday.
ECB President Christine Lagarde said in the news conference that the added “important” statement was a “loud and clear indication” indication of their current sentiment.
Is very much possible the ECB won’t be able to cut as much as they would like or need without the FED cutting too because they probably don’t want to destroy the euro either, even if its temporary.
Unfortunately, I don’t think they are completely FED-independent as Lagarde says.
Holzmann:
“I would find it difficult if we move too far away from the Fed,” Holzmann said in an interview in Washington. “If the Fed doesn’t cut rates at all this year, I hesitate to imagine us cutting three or four times.”
Holzmann also said:
“There is still a lot of uncertainty about the inflation outlook — in particular because of the upcoming wage negotiations and geopolitical risks such as the war in Ukraine and the situation in the Middle East. There are many upside risks to inflation that could easily materialize.”
“If the oil price were to rise significantly and fuel inflation in the euro area, we couldn’t ignore it and ‘look through’ it. Our mandate is price stability and not output stabilization. In case of doubt, we will also have to accept slightly higher unemployment and endure a mild recession if that is what it takes to achieve our goal.”
ECB cuts key interest rate by 25 basis points taking it to 3.75%, as was widely-anticipated.
“Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady,” ECB Governing Council said.
However, they raised projections for 2024 and 2025 headline inflation to 2.5% and 2.2% from 2.3% and 2%, respectively.
They also raised their projections for 2024 and 2025 core inflation to 2.8% and 2.2% from 2.6% and 2.1%, respectively.
They now forecast 2024 and 2025 GDP of 0.9% and 1.4% from 0.6% and 1.5%, respectively.
“Despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year,” the statement notes.
The council pointed out that they will continue to follow a data-dependent approach in determining the appropriate level and duration of the restriction.
“The Governing Council is not pre-committing to a particular rate path,” the statement added.
I=6 ECB cuts interest rate by 25 basis points as was widely-anticipated
ECB cuts key interest rate by 25 basis points taking it to 3.50%, as was widely-expected.
ECB staff reiterated their June headline inflation projections for 2024 (2.5%), 2025 (2.2%) and 2026 (1.9%).
However, they revised upwards their June core inflation projections for 2024 (from 2.8% to 2.9%) and 2025 (from 2.2% to 2.3%) but left that of 2026 unchanged at 2.0% since service inflation has been higher than expected.
They revised downwards their June GDP projections for 2024 (from 0.9% to 0.8%), 2025 (from 1.4% to 1.3%) and 2026 (from 1.6% to 1.5%) due to weaker domestic demand.
“The Governing Council is not pre-committing to a particular rate path,” the ECB statement reads.
Amid recent weak economic data from Europe, futures markets are now anticipating significant monetary easing over the next two years. EURIBOR is projected to bottom out around 1.8% by the end of 2025, before stabilizing near 2% thereafter.
This suggests that markets have priced in approximately 225 basis points of rate cuts from the ECB from the peak, and 175bps more to come.
The ECB in its latest projections is forecasting 3M EURIBOR to reach 2.5% in 2025 and 2.2% in 2026.
So the market is currently pricing more (50bps) and faster rate cuts.
I don’t have enough knowledge about the European economy to know with high certainty the most likely path, but due to my expectations of a weaker economy, I would not be surprised to see rates in the 1.50-1.75% range in the next 2 years.
I=6 ECB cuts interest rate by 25 basis points as was widely-expected
ECB lowers its key interest rate by 25 basis points taking it to 3.25%, as was widely-expected.
The governing council said that disinflation is widely on track.
“The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity.”
I=6 ECB lowers interest rate by 25 basis points as expected, reduces GDP and inflation forecasts for 2024, 2025 and 2026
ECB lowers its key interest rate by 25 basis points to 3.0%, as was widely expected by analysts.
Notable changes in its statement is the removal of its repeated message that said it needed to “keep policy rates sufficiently restrictive for as long as necessary”.
“The disinflation process is well on track,” the statement reads.
ECB lowered its inflation forecast for 2024 and 2025 to 2.4% and 2.1% from 2.5% and 2.2%, respectively while that of 2026 was maintained at 1.9%, and first outlook for 2027 was introduced, which stands at 2.1%.
ECB also lowered its economic projections for 2024, 2025 and 2026 to 0.7%, 1.1% and 1.4% from 0.8%, 1.3%, and 1.5%, respectively.
ECB lowered its key interest rate by 25 basis points to 2.75%, as was widely expected by the market.
“The disinflation process is well on track. Inflation has continued to develop broadly in line with the staff projections and is set to return to the Governing Council’s 2% medium-term target in the course of this year,” the post-statement reads
Despite core inflation remaining above target, and without much progress since April 2024, the ECB has decided to continue cutting interest rates, at this point they seem to be prioritizing growth concerns (especially Germany) over inflation.
Currently, rates are sitting at par or below inflation rates in some countries, meaning negative real rates are happening again, which could have a series of negative consequences, including reigniting inflation.
Regarding growth, it seems their problem is more structural due to higher rates, so I am not that confident lower rates will fix lower growth entirely.
Ultimately I think the ECB faces a tougher environment than the FED currently, due to their kind of “stagflationary” environment.
The market is currently pricing 3 more cuts in 2025, but rising again after that.
As of January 2025, the Eurosystem will no longer reinvest any of its monetary policy bond holdings, leading to a run-off in our portfolios of around €40 billion per month.
Starting from January 2025 maturing PEPP (Pandemic Emergency Purchase Programme) bonds will no longer be reinvested.
This comes in addition to not reinvesting maturing bonds under the APP (Asset Purchase Programme) program since July 2023 which lead to a balance sheet reduction of €376.8 billion over 18 months or €20.9 billion per month on average.
Since 2022 banks have also fully repaid more than €2 trillion loans granted under TLTRO III.
The expected trajectory of balance sheet reduction can be found here unless there have been any new insights on that topic in yesterdays ECB meeting @Magaly?
I=6 ECB lowers interest rates by 25 basis points as expected, signals easing phase is near its end and lowered economic growth outlook for 2025 to 0.9% from 1.2%
ECB cuts interest rate by 25 basis points as expected by the market, taking the key interest rate to 2.5%.
In its statement, ECB said the disinflation process is "well on track’’ and said the monetary policy stance is “becoming meaningfully less restrictive”.
ECB increased its inflation forecast for 2025 to 2.3% from 2.1% due to stronger “energy price dynamics”, retained their inflation outlook for 2026 at 1.9% and lowered that of 2027 to 2.0% from 2.1%.
It lowered its core inflation outlook for 2025 to 2.2% from 2.3%, increased that of 2026 to 2.0% from 1.9%, and maintained that of 2027 at 1.9%.
It lowered the economic outlook for 2025 and 2026 to 0.9% and 1.2% from 1.1% and 1.4% respectively, but retained that of 2027 at 1.3%.
Domestic inflation remains high due to lagged wage and price adjustments, but wage growth is moderating as expected.
The Governing Council will follow a "data dependent and meeting by meeting approach
The downward revisions for 2025 and 2026 reflect lower exports and ongoing weakness in investment, partly due to trade and broader policy uncertainty.
Recent survey data suggest subdued employment growth in early 2025.
Past interest rate hikes are still transmitting to the stock of credit, keeping lending overall subdued.
The European Commission announced a potential €800 billion for defense and borrowing, and German authorities announced significant infrastructure and defense spending plans.
Market yieldsdDecreased after the January meeting but have risen recently due to a revised fiscal policy outlook.
The decision by the Trump administration to halt the Federal Reserve’s CBDC project presents a “golden opportunity” for the ECB to push forward with the digital Euro.
President Lagarde’s personal view is that trade negotiation is preferable to tariff and commercial wars but should occur from a position of strength.
I=8 Lagarde warned US tariffs will slow economic growth by 0.3%-0.5% in the first year
European Central Bank President Christine Lagarde warned that Trump’s tariffs that were met with retaliation will weaken the economic growth in the Eurozone.
Lagarde said the 25% tariffs on imports from Europe will weaken eurozone’s economic growth rate by 0.3% in the first year.
She said that if the EU retaliates, the impact on the economy will rise to 0.5% while inflation would be increased by the same proportion.
Recent ECB projections saw economy growing 0.9% in 2025 and 1.2% in 2026, and inflation averaging 2.3% this year and 1.9% the next.
She said the inflationary impact will fade over time, suggesting that they are unlikely to increase interest rates.
“The effect would ease in the medium term due to lower economic activity dampening inflationary pressures,” she said.
