ECB Cuts Rates by 25BP, Financial Conditions Still ‘Tight’

30 January 2025

ECB Cuts Rates by 25BP, Financial Conditions Still ‘Tight’
Photo by the ECB.

By Marta Vilar – MADRID (Econostream) - The European Central Bank’s Governing Council decided on Thursday to cut its three key interest rates by 25bp, as widely expected by markets and analysts.

‘The disinflation process is well on track’, the ECB said in its monetary policy statement. ‘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’.

Economic activity was still facing downward pressure but real wages were on the rise and easier monetary policy would eventually help demand recover, the document said.

‘[F]inancing conditions continue to be tight, also because monetary policy remains restrictive and past interest rate hikes are still transmitting to the stock of credit, with some maturing loans being rolled over at higher rates’, the statement said.

With the cut, the three ECB interest rates, effective from February 5, will be lowered to 2.75% for the deposit facility, to 3.0% for the main refinancing operations and to 3.15% for the marginal lending facility.

‘The Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target’, the press release said.

No macroeconomic projections were due this meeting. In December the ECB maintained its forecast for headline inflation, whereas growth was revised down.

The ECB projects HICP of 2.4% in 2024, 2.1% in 2025,1.9% in 2026 and 2.1% in 2027, with the measure ex-energy and food at 2.9% in 2024, 2.3% in 2025,1.9% in 2026 and 1.9% in 2027. Economic growth was revised downwards to 0.7% in 2024, 1.1% in 2025,1.4% in 2026 and 1.3% in 2027, according to the December forecasts.