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The European Central Bank has cut interest rates by a quarter-point to 3 per cent, as it watered down its hawkish language and warned that growth will be weaker than it had previously forecast.
The ECB’s cut — its fourth reduction in borrowing costs since June — takes the central bank’s benchmark deposit rate to its lowest level since March 2023.
It came as the ECB warned that the Eurozone economy would grow by just 1.1 per cent in 2025, down from its September estimate of 1.3 per cent.
The ECB dropped its commitment to “keep policy rates sufficiently restrictive for as long as necessary” to bring down inflation in line with its 2 per cent target. Instead it stressed that the “effects of restrictive monetary policy” would be “gradually fading” over time.
The euro was unchanged at $1.048 in trading immediately after the widely anticipated cut.
Investors anticipate that the ECB will cut rates more than the US Federal Reserve next year, since growth in the Eurozone is widely expected to lag behind that of the US.
The currency area’s export-heavy economy is also vulnerable to president-elect Donald Trump’s threat to impose sweeping tariffs of up to 20 per cent on all US imports.
Traders expect the ECB to carry out a further five quarter-point cuts by next September, which would take the deposit rate to 1.75 per cent. Expectations were unchanged after Thursday’s decision.
Swaps markets are pricing in around 0.75 percentage points of cuts from the US Federal Reserve over the same time period, which would bring the target range down to between 3.75 and 4 per cent.
Earlier in the day, the Swiss National Bank halved its main policy rate to 0.5 per cent, a bigger-than-expected cut.
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