The European Central Bank on Thursday, January 30, decided on another interest rates cut, which was the fifth since June.
Officials of the mentioned financial institution have reduced the deposit rate by a quarter of a point. Now the corresponding figure is 2.75%.
The decision on the next interest rates cut by the ECB was made against the background of a slowdown in economic growth in the region and the inflation target of 2% in reach.
It is worth noting separately that the decision of the European financial regulator taken on Thursday coincided with the preliminary expectations of analysts interviewed by the media.
ECB officials continue to characterize the current configuration of the financial institution’s monetary policy as restrictive. The media notes that the relevant statements are a signal that further actions are expected to lower the cost of borrowing. At the same time, ECB officials consistently repeat that they do not commit to a particular interest rates path.
The ECB President Christine Lagarde, commenting on Thursday’s decision, said that the financial institution knows the direction of travel. She also noted that the proposal to cut interest rates was unanimously supported. Moreover, Christine Lagarde stated that solid forward guidance is currently unrealistic, as there is significant and likely growing uncertainty. In this statement by the head of the ECB, there is a clear echo of the present geopolitical tension, which one way or another affects all world capitals.
It’s worth noting that investors expected the continued easing of the monetary policy of the European financial regulator. They assume that by the end of the current year, the ECB will cut interest rates by another 70 basis points.
As noted by the media, European policymakers actually did not pay attention to the latest uptick in inflation in the eurozone, being confident that the target would still be reached. In December, the corresponding figure jumped to 2.4%. Currently, policymakers are concerned about the weak performance of the economies of the 20 eurozone countries. Stagnation suddenly began in this region at the end of last year.
The eurozone is also currently facing the risk of a tariff threat from the President of the United States, Donald Trump. The tightening of Washington’s trade policy will have sensitive consequences. In the relevant context, it is worth mentioning that this week the Federal Reserve System decided to keep interest rates at the same level.
The likelihood that the United States will raise tariffs on imported goods is actually the main source of uncertainty at the moment. The realization of the corresponding intention is most likely to provoke a rise in prices on both sides of the Atlantic Ocean.
Fed Chairman Jerome Powell said this week that the US central bank is in no hurry to lower borrowing costs, waiting what kind of situation will form when the Donald Trump administration begins to enact its economic policies.
Christine Lagarde noted that the European economy will remain frail in the near term. She also stated that risks to the outlook still tilted to the downside due to the possibility of greater global trade frictions. Moreover, Christine Lagarde said that surveys indicate that manufacturing continues to contract, while activity in the service area is growing. Apart from that, she underlined that consumer trust is fragile.
