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ECB warns of ‘headwinds’ to Eurozone economy as it cuts rate to 2.75%

ECB warns of %E2%80%98headwinds to Eurozone economy as it cuts ECB warns of %E2%80%98headwinds to Eurozone economy as it cuts

Digest opened free editor

The European Central Bank has warned of the “opposite winds” of the stagnant economy in the euro area, as it reduced the standard interest rate by a quarter of a point to 2.75 percent.

On Thursday, a unanimous decision, which transmits the European Central Bank’s deposit rate to its lowest level since early 2023, hours after Eurostat stated that the eurozone economy did not grow at all in the fourth quarter of 2024.

European Central Bank President Christine Lagarde warned that the economy “was to remain weak in the short term,” adding that investigative studies indicate a continuous contraction in manufacturing even with the growth of services. “Consumer confidence is fragile,” she said.

She said that the economic risks “tilted to the negative”, because the larger frictions of global trade can affect the economy of the euro zone while low confidence may serve as withdrawal of investment and consumption.

The President of the European Central Bank argued that although it was not easy to know whether the definitions would be inflated or contraction, “all we know with certainty is that it will have a global negative impact.”

In a statement accompanying the decision, the European Central Bank confirmed that the decrease in inflation, which decreased from the peak of 2022 amounted to 1022 to 2.4 percent in December, was “good on the right track”, noting that “the economy still faces the opposite wind.”

The central bank added that “monetary policy remains restricted” – a recognition that interest rates are still higher than the neutral rate that does not motivate or hinder the economy.

The euro is rarely strengthened after the expected reduction on a large scale, an increase of 0.1 percent a day against the dollar at $ 1.043.

The European Central Bank has now reduced interest rates five times since last summer and in trading immediately after the decision, the siped markets were pricing in two or three other points by the end of the year, and they have not changed from the time earlier in the day.

“Our point of view is that economic data will continue to push the European Central Bank to reduce each meeting until the deposit price reaches 1.5 percent,” said Thomas Weldic, chief European economist in asset director Tr Ro Price.

He pointed to the threat to economic growth in the euro area, which was put in place by US tariff plans, Donald Trump, and the expected decline in inflation later in the year.

Lagarde said that with the confrontation of politicians “important and perhaps increasing” uncertainty “, it was not possible to give the company’s directives forward. She added that the Board of Directors of the European Central Bank had no discussion “about the point where we must stop [cutting interest rates]”During its meeting on Thursday.

“We know the direction of travel, and this is the trend we will take,” she said, while maintaining the sequence, speed and size of additional discounts will be a specific data.

She said that the recent increases in the long -term government borrowing costs were due to market movements in the United States, but she insisted that the European Central Bank discounts will have an impact on the economy of the eurozone.

The central bank predicts a slight growth acceleration from 0.7 percent for the past year to 1.1 percent this year.

On Thursday, the European Central Bank repeated that “the effective effects of the restricted monetary policy should support the demand for demand over time,” indicating increases in real income and low borrowing costs.

There is a recovery. Lagarde said: “We have never talked about the recession,” noting that last year’s growth was weak in 2023 and that the labor market was strong.

In contrast to slow progress in the eurozone, the American economy expanded at an annual rate of 2.8 percent in the third quarter of last year.

The European Central Bank’s decision came a day after the US Federal Reserve kept it.

Investors’ expectations will reduce prices more than the Federal Reserve this year, which is close to the dollar equal.

“At the present time, the question is not whether the European Central Bank will continue to reduce interest rates this year, but by the amount,” wrote Ulrich Catter, the chief economist in Dikabank.

In the transformation from the previous charity language, in December, the European Central Bank decreased in compliance with “maintaining the policy rates restored for the longest necessity” to drop inflation in line with its 2 percent goal.

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2025-01-30 14:38:00


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