ECB warned about the ‘reverse wind’ for the Eurozone economy because it cuts to the rate to 2.75%

Free editor’s digestive unlocking

Roula Khalaf, an editor of FT, chose her favorite stories in this weekly news.

The European Central Bank has warned of the Muslims’ reverse winds for the stagnant economy of Eurozone when it cuts its benchmark interest rates to a quarter to 2.75 %.

Decided to agree on Thursday, giving ECBIts deposit ratio is at the lowest level since the beginning of 2023, it was a few hours after Eurostat reported that the Eurozone economy was completely no growth in the fourth quarter of 2024.

ECB President Christine Lagarde warned that the economy was established to maintain weakness in the nearest time, adding that surveys have shown a continuous shrinking in production even when the services developed the services. . Consumer confidence is fragile, she said.

She argues that economic risks have been inclined to disadvantages, because larger frictions for global trade may be heavy on the Eurozone economy while the lower belief may be a force. Investment for investment and consumption.

The head of the ECB argued that, although it was not easy to know if the tariff would be inflation or deflation, all that we know for sure it will have a global negative impact.

In a statement accompanied by a decision, the ECB said that the decline in inflation, which decreased from the highest level in 2022 to 10.6 % to 2.4 % in December, was monitored, while saving It means that the economy is still facing the reverse winds.

The central bank added that Islamic monetary policy is still limited – an acknowledgment that the interest rate is still higher than the neutral rate that does not stimulate nor does it keep the economy.

The euro was a little intensified after the expected expected, up 0.1 % in the day compared to the dollar at $ 1,043.

The ECB has now reduced the interest rate five times since the summer and traded right after the decision, the market swap has been valued in two or three times a quarter of a quarter by the end of this year, not replaced. Change compared to the previous day.

Our view is that economic data will continue to promote the ECB cut at each meeting until the deposit rate reaches 1.5 %, Mr. Tomasz Wieladek, the European Economy at the property management. T Rowe Price, predicted more than the market consensus.

He quoted the threat to Eurozone economic growth due to US President Donald Trump’s tariff plans and an expected decrease in inflation by the end of this year.

Lagarde said that, policy makers faced significant uncertainty and could increase, could not give instructions forward. She added that the Board of Directors of ECB did not have any discussions about the point that we had to stop [cutting interest rates]In its meeting on Thursday.

We know the direction of movement, this is the direction we will do, she said, maintaining that the sequence, speed and the next cutting level will be controlled.

She argued that the recent increase in the borrowing cost of the long -term Eurozone government was partly due to market movements in the US, but emphasized that the ECB cut will still affect the Eurozone economy.

Despite its reduction, German 10 -year bond yield, a benchmark for Eurozone, increased nearly half a percentage from low in December to 2.51 % currently. The productivity moves back to the price.

On Thursday, ECB recalled that the gradual effects of the limited monetary policy will support the need for time, indicating increasing real income and lower loan costs. .

There is recovery. . . We have never talked about inflation, Mr. Lag Lagarde said, note that last year’s growth was doubled compared to 2023 and the labor market was very strong.

However, the ECB only predicted accelerating from 0.7 % for last year to 1.1 % this year.

Contrary to the slow progress of Eurozone, American economy Expanded with an annual ratio of 2.8 percent in the third quarter of last year.

The ECB decision was made one day after the US Federal Reserve kept the rate of being retained.

Investors expect that it will cut more interest rates than this year’s Fed has weakened the euro, which has come close to the odd even with the dollar.

Currently, the question is not whether ECB will continue to reduce interest rates this year, but how much, he wrote Ulrich Kater, economist at Dekabas, in a note for customers.

In a change from the previous Hawkish language, in December, the ECB abandoned a commitment to keeping the policy price limited enough as long as it is necessary to reduce inflation according to its 2 % target.