ECB says policy becoming 'meaningfully less restrictive'
By Alexander Bueso
Date: Thursday 06 Mar 2025
(Sharecast News) - Rate-setters at the European Central Bank announced a further interest rate cut and said that monetary policy was becoming "meaningfully less restrictive".
That statement appeared to indicate that monetary easing was set to slow to one degree or another.
Interest rates on the deposit facility, the main refinancing operations and the marginal lending facility would all be lowered to 2.50%, 2.65% and 2.90% respectively, with effect from 12 March 2025, the ECB said.
The ECB also released its latest staff projections for inflation and growth.
Consumer price inflation was now seen averaging 2.3%, 1.9% and 2.0% between 2025-27.
The forecast for 2025 had been revised up due to stronger energy prices.
Gross domestic product growth on the other hand was seen coming in lower in 2025 and 2026, at 0.9% and 1.2%, respectively.
"The downward revisions for 2025 and 2026 reflect lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty as well as broader policy uncertainty," the central bank said.
"Rising real incomes and the gradually fading effects of past rate hikes remain the key drivers underpinning the expected pick-up in demand over time," the ECB said.
In response to the ECB-s messaging, Jack Allen-Reynolds at Capital Economics said that the central bank had indicated that the policy outlook was now "less clear".
"We still think that the Bank will lower interest rates further but now forecast the deposit rate to bottom out at 2% rather than 1.5%."
For his part, Carsten Brzeski at ING was telling clients: "Another week of historical events in Europe is not over, yet, but it looks as if the ECB also needs some time to come to terms with everything that has happened. A lot seems to have changed for Europe, and the ECB, in just a few days."
His forecast now was that the ECB would skip a cut at its next meeting and reduce rates just once more before summer.
"However, even if the need for further rate cuts fades, the ECB won't be off the hook. Rising bond yields on the back of higher government debt could bring another theme to the eurozone soon: yield curve control."
-- More to follow --
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