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ECB cuts interest rates by 0.25% to 2.75%

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ECB initiates rate cuts amid economic slowdown

The European Central Bank (ECB) has announced a 25 basis point interest rate cut, reducing the benchmark ratefrom 3% to 2.75%.

  • Main refinancing rate lowered to 2.90%
  • Marginal lending facility rate reduced to 3.15%

According to the ECB, the disinflation process is well underway, and inflation is evolving in line with projections, expected to return to the 2% target by the end of the year.

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Despite this policy shift, the ECB acknowledges that the Eurozone economy still faces adverse conditions, but easing monetary policy could help stimulate demand.

PIMCO: “Rates will continue to decline gradually”

Konstantin Veit, Portfolio Manager at PIMCO, provided insights into the ECB’s decision:
📉 Rate cuts were warranted due to weak economic growth and inflation aligning with the 2% target.
⚖️ The ECB is transitioning to a more neutral policy, with a target range between 1.75% and 2.25%.
🛬 The terminal rate is expected to settle around 2%, indicating a soft landing for the Eurozone economy.
📊 Future rate decisions will be data-driven, with gradual cuts expected.

“We believe economic growth will remain weaker than the ECB’s projections, leaving room for lower terminal rate expectations in the market.” – Veit commented.

Antonella Manganelli, CEO of Payden & Rygel Italy, shared her perspective:

“The 25 basis point cut was expected and aligns with market forecasts. Swap markets still price in three more rate reductions by the end of 2025. The next cut is likely in March, with rates expected to reach 2% by year-end.”

💡 Key takeaways:

  • If economic growth remains weak, the ECB could lower rates below 2%.
  • Financial markets reacted positively:
    • 📈 The euro strengthened: EUR/USD +0.4% (1.0467), EUR/GBP +0.2% (0.8390).
    • 📊 European bonds and risk assets rallied, signaling confidence in the ECB’s policy shift.

Antonio Cesarano, Chief Global Strategist at Intermonte:
“The rate cut agenda is clear, but the main risk is renewed inflation due to Trump’s tariff policies. However, the euro’s appreciation signals that markets see ECB cuts as a growth catalyst for Europe.”

What’s next for the ECB?

📆 Next ECB meeting: March 2025
🛬 Target rate: around 2% by year-end, with room for further cuts if economic conditions worsen.

💬 What’s your view on the ECB’s decision? Leave a comment below!

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