New ECB rate cut: support for growth under pressure
Rudolphe ABEN
The European Central Bank (ECB) announced on Thursday, January 30, a new interest rate cut. The deposit rate, the main reference indicator, has been lowered by 0.25 percentage points, now standing at 2.75%. This decision marks the fifth cut since June 2024 and the fourth consecutive one, confirming the institution's intention to stimulate the eurozone economy in an uncertain context.
Necessary Support for a Fragile Growth
Faced with a persistent economic slowdown, the ECB continues its accommodative policy to reduce credit costs and encourage investment and consumption. By easing monetary conditions, it aims to revive sluggish growth in the eurozone, weakened by international tensions and a gloomy economic climate.
However, the ECB must navigate a complex environment. Uncertainty regarding Donald Trump’s economic policies, particularly in international trade and financial regulation, weighs on growth prospects and complicates the anticipation of the effects of monetary measures taken by Frankfurt.
Inflation on the Path to Stabilization
Despite a rise in prices to 2.4% in December 2024, ECB officials remain confident about inflation trends. According to their statement, "the disinflation process is well underway", and the objective of bringing inflation back to 2% by the end of the year remains unchanged.
This declaration aims to reassure markets and investors regarding price stability. However, some analysts believe that the price increase observed at the end of 2024 could limit the ECB’s room for maneuver in the coming months.
A Divergence with Fed Policy
While the ECB lowers its rates, the U.S. Federal Reserve (Fed) has chosen to keep its rates unchanged, within a range of 4.25% to 4.50%.
This divergence between the two major central banks is mainly due to differences in economic dynamics between the two regions. In the United States, inflation remains higher, and the labor market remains strong, prompting the Fed to be cautious before considering monetary easing.
In contrast, in the eurozone, weaker growth justifies a more accommodative monetary policy, despite the uncertainties.
What Are the Impacts on the European Economy?
The ECB’s interest rate cut could have several effects:
-
Encouraging business investment by reducing financing costs.
-
Supporting household consumption through more accessible credit.
-
Easing the debt burden for eurozone states, particularly the most indebted ones.
However, this strategy is not without risks. A monetary policy that is too lax could fuel speculative bubbles or limit the ECB’s future room for action in the event of a major economic shock.
A Strategy Under Scrutiny
By implementing this new rate cut, the ECB confirms its commitment to supporting the European economy in the face of fragile growth. However, it will need to remain vigilant regarding inflationary pressures and geopolitical uncertainties that could complicate its mission.
The evolution of markets and the reaction of businesses and households to these monetary easing measures will be crucial in assessing the effectiveness of this policy in the coming months.