Europa Posted on 2025-01-30 17:40:00

ECB cuts rates again as inflation nears 2% and growth remains weak!

From Edel Strazimiri

ECB cuts rates again as inflation nears 2% and growth remains weak!

As analysts had predicted, the ECB cut interest rates on Thursday afternoon during its January meeting. As a result, the interest rates on the deposit facility, main refinancing operations and marginal lending facility will be cut to 2.75%, 2.90% and 3.15% respectively, with effect from 5 February 2025.

The interest rate on the main refinancing operations is the rate that banks pay when they borrow from the ECB for one week, while the deposit facility rate is what banks can use to make overnight deposits in the Eurosystem. The marginal lending rate provides overnight credit to banks from the Eurosystem.

"The Governing Council is committed to ensuring that inflation is sustainably stabilised at its medium-term objective of 2%. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate stance of monetary policy. In particular, the Governing Council's interest rate decisions will be based on its assessment of the inflation outlook in the light of incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy. Policy transmission The Governing Council is not committing itself in advance to a particular rate path," the ECB said in a statement.

The ECB's latest monetary policy decision comes after the eurozone economy stalled in the fourth quarter of 2024, according to earlier preliminary data from Eurostat, with Germany and France, the bloc's two largest economies, recording worse-than-expected contractions.

Eurozone gross domestic product (GDP) was unchanged from the previous quarter, a sharp slowdown from the 0.4% growth recorded in the third quarter and below analysts' forecast of 0.1% expansion. It marks the weakest performance since the fourth quarter of 2023.

For the wider European Union (EU), GDP grew by 0.1% quarter-on-quarter. On an annual basis, seasonally adjusted GDP grew by 0.9% in the euro area and 1.1% in the EU, improving slightly from the previous quarter's readings of 0.9% and 1.0%, respectively.

The biggest drag on growth came from Germany and France, both of which unexpectedly contracted. Germany’s economy shrank by 0.2%, worse than the 0.1% decline expected, while France’s GDP fell by 0.1%, missing expectations of stagnation. Meanwhile, Italy’s economy remained flat for the second quarter in a row, defying forecasts for modest growth of 0.1%.

On the other hand, some peripheral economies fared better, with Portugal (+1.5%) leading the growth rankings, followed by Lithuania (+0.9%) and Spain (+0.8%). The weakest performances were recorded in Ireland (-1.3%), Germany (-0.2%) and France (-0.1%).

Weaker-than-expected GDP figures strengthened expectations that the ECB would cut interest rates at its policy meeting today.

Poll

Poll

Live TV

Latest news
All news

Most visited