ECB to Continue Rate Cuts in 2025, Aiming for 2% Inflation Target

Dec 16, 2024, 09:02 AM

The European Central Bank (ECB) is poised to continue its policy of interest rate reductions in 2025, according to President Christine Lagarde. During a speech at the Bank of Lithuania, Lagarde indicated that if inflation data continues to align with the ECB's baseline scenario, further rate cuts are expected. This follows a series of four rate cuts in 2024, bringing the key deposit rate down to 3% from an all-time high of 4%. Lagarde highlighted that the ECB's monetary policy stance has shifted from being 'sufficiently restrictive' to aiming for an 'appropriate' level, signaling a move towards a neutral rate that neither restricts nor stimulates the economy. The ECB's decision to ease monetary policy comes as inflation in the eurozone is projected to decline to 2.1% in 2025 and 1.9% in 2026, with service sector inflation momentum dropping steeply. Vice President Luis de Guindos echoed this sentiment, expressing confidence in achieving the inflation target of 2% in 2025 through monetary policy adjustments. However, he also warned of potential inflationary pressures from US tariff increases and geopolitical tensions, which could impact the eurozone's growth outlook. Wage growth is expected to be 3% in 2025, aligning with the ECB's inflation target.