ECB Cuts Interest Rates and Keeps Door Open for More Easing

The European Central Bank (ECB) has cut interest rates by a further 0.25 per cent, keeping the door open for more easing as Europe's flagging economy and the risk of a fresh trade war with the US take precedence over inflation worries. The ECB's deposit rate was cut to 2.75 per cent from 3 per cent, marking the fifth rate cut since July last year. This decision comes as fresh figures show the euro area economy unexpectedly contracted in the final quarter of 2024, with growth across the single currency bloc stagnating as a manufacturing slump in Germany weighs on output and sentiment is soured by the threat of punitive trade measures from US president Donald Trump.



The ECB's latest cut is good news for the estimated 127,000 Irish-based tracker mortgage holders, who will see an immediate reduction in their monthly repayments. Those on fixed-rate or variable-rate mortgages will have to wait to see if their banks pass on the cut. Markets have factored in an additional 25 basis point cut at the ECB's next meeting in March, with subsequent policy moves dependent on economic data, potentially reaching a terminal level of 2 per cent.

The ECB's decision to cut rates is a response to the slowing economic growth and the threat of a trade war with the US. The ECB's staff projections suggest that the euro area economy will grow by 1.1 per cent in 2024, which is an expansion from last year but still a slow rate of growth. The eurozone economy has been hampered by stagnation and turmoil at its core, in Germany and France, as well as the impact of slowing Chinese trade, while periphery economies including Spain and Greece have benefited from a boost in tourism.

The ECB's latest rate cut is a sign that the central bank is willing to take action to support the economy and mitigate the risks posed by a potential trade war with the US. The ECB's forward guidance indicates that rates will remain low for an extended period, which should help to anchor long-term inflation expectations. The ECB's staff projections suggest that inflation will be back at its 2 per cent target in 2025, indicating that the ECB's policies are expected to achieve their inflation objective.

In conclusion, the ECB's decision to cut interest rates and keep the door open for more easing is a response to the slowing economic growth and the threat of a trade war with the US. The ECB's policies are expected to support economic growth and help to mitigate the risks posed by a potential trade war with the US. The ECB's forward guidance and staff projections indicate that the central bank is committed to achieving its inflation objective and supporting the economy in the face of these challenges.