The European Central Bank (ECB) reduced interest rates by 25 basis points on Thursday following data indicating that the eurozone economy stagnated in the final quarter of 2024.
As expected, the quarter-point cut brought the deposit facility, main refinancing operations, and marginal lending facility rates to 2.75%, 2.90%, and 3.15%, respectively.
Last month, the Frankfurt-based central bank lowered rates for the fourth time since June and for the third consecutive meeting.
Disinflation process remains "well on track"
In a statement, the ECB noted that the disinflation process remains "well on track." Inflation has generally aligned with staff projections and is expected to return to the Governing Council’s 2% medium-term target later this year, before stabilizing around that level.
While domestic inflation remains elevated, wage growth is slowing, the ECB observed. The economy continues to face challenges, but rising real incomes and the diminishing impact of restrictive monetary policy are expected to boost demand over time.
The ECB reiterated its commitment to a data-driven, meeting-by-meeting approach in setting monetary policy.
Next decisions to be data-dependent
“The Governing Council’s interest rate decisions will be guided by its assessment of the inflation outlook, incoming economic and financial data, underlying inflation trends, and the effectiveness of monetary policy transmission,” the statement read. “The Governing Council is not pre-committing to a specific rate path.”
The decision followed data showing that the eurozone economy stagnated in the fourth quarter. According to Eurostat, gross domestic product remained flat in the final quarter of 2024, following 0.4% growth in the previous quarter. This outcome fell short of FXStreet-cited consensus forecasts, which had projected a slight 0.1% increase.
