ECB’s Stournaras: Rates Could Fall to 2% in 2025, Pace and Size Still Data-Dependent

20 February 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Yannis Stournaras said last week that the ECB would cut rates to 2% during 2025 but that the pace and size of cuts would still be decided meeting by meeting with a data-dependent approach.

In a speech to the Ambassadors of the Member States of the European Union in Athens last week, the text of which was made public on Thursday, Stournaras, who heads the Bank of Greece, said that ‘unless unexpected contingencies materialise, the ECB’s key interest rate … could fall to around 2% in the course of 2025’.

The Eurozone was in a ‘critical’ situation, according to Stournaras.

‘[M]ore recent data, like the stagnation of GDP in the last quarter of 2024, already raise questions about the growth dynamics this year’, he said.

Interest rate cuts should help the economy recover, he said.

‘The good news is that the disinflation process remains well on track’, he said.

Stournaras also pointed out that core inflation had been falling more than had been expected by the ECB’s December projections.

‘And this means that the past monetary policy tightening has done its job in taming inflation’, he said.

The slowdown seen in compensation per employee growth was also ensuring disinflation would continue, he said.

‘[T]he balance of macroeconomic risks in the euro area has shifted from concerns about high inflation to concerns about low growth’, he said.

US President Donald Trump appeared to be willing to carry out his tariff threats, which would have significant consequences for Europe, according to Stournaras.

‘Market estimates suggest that a 10% US tariff on all imports from the euro area, coupled with higher uncertainty about future US-EU trade relations, could depress euro area GDP growth by up to 0.5 percentage points within a year’, he said.

The effects of tariffs on inflation was not so clear, he said, as the depreciation of the euro could have an upward impact on inflation, while a re-routing of inexpensive Chinese products to Europe could push it down in a ceteris paribus situation.