Dubai Telegraph - ECB cuts rate again as eurozone falters, with eye on Trump

The central bank cut its benchmark deposit rate by a further quarter point to 2.75 percent on Thursday, its fifth reduction since June last year and a move widely expected by observers.

The ECB's decision stands in contrast to the latest move by the US Federal Reserve.

The central bank in the United States, whose economy has been outpacing the eurozone's, on Wednesday left its key lending rate unchanged and said it was in no "hurry" to make changes, despite pressure from Trump for more cuts.

The ECB had previously hiked borrowing costs aggressively to tame runaway energy and food costs, but is now bringing them back down as price rises slow and the eurozone economy falters.

A recent uptick in inflation -- which rose to 2.4 percent in December, above the ECB's two-percent target -- has caused some jitters.

But policymakers believe price pressures will ease during 2025, and their focus has shifted to relieving the strain on the beleaguered 20-nation eurozone.

Data released before the ECB's meeting showed the eurozone economy registered zero growth in the final quarter of 2024, dragged down by contractions in heavyweights France and Germany, despite expectations for a slight expansion.

In a statement announcing its latest decision, the Frankfurt-based ECB said the process of bringing inflation down was "well on track", and the figure should return to the two-percent target "in the course of this year".

It conceded that the economy was "still facing headwinds" but added that "rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time".

The ECB reiterated that it would make its decisions based on incoming data, and it was not "pre-committing to a particular rate path".

ING analyst Carsten Brzeski said the ECB's rate call was "no surprise" and predicted more cuts at coming meetings.

"Despite somewhat stickier headline inflation, the sluggishness of the eurozone economy as well as the ECB's strong conviction that inflation will return to target were strong arguments for today's rate cut," he said.

- Weak eurozone -

The eurozone has been hobbled by issues ranging from high energy costs to a manufacturing slowdown, and economic growth for the single currency area came in at just 0.7 percent last year, according to official data.

Germany, the single currency area's biggest economy, has fared poorly, and is battling political turbulence as it heads for early elections next month following the collapse of the government in Berlin.

Political turbulence in France, where a new government took office in December following the ouster of its predecessor, is also muddying the outlook.

But the biggest question mark for 2025 is the return to the White House of Trump.

Trump has threatened sweeping tariffs on all imports into the United States, including from the EU, which could hit the eurozone hard.

Serious new trade tensions could also potentially stoke inflation in the United States and beyond, hampering the work of central bankers in keeping a lid on prices.

ECB chief Christine Lagarde has downplayed worries that a fresh spike in US inflation could spill over to the eurozone.

Lagarde is not expected to offer too many clues about the ECB's next moves as she stays true to the central bank's recent stance of making decisions based on the latest data.

Most analysts believe the ECB will cut rates at least at its next meeting in March.

X.Wong--DT