The European Central Bank lowered its deposit facility rate by 25 basis points to 2.75% at its January 2025 governing council meeting, delivering its fifth cut since June 2024 as policymakers assessed that the disinflation process in the euro area remained on track. The decision, announced on 30 January, continues the ECB's unwinding of the restrictive monetary stance it adopted to combat the surge in consumer prices that followed the pandemic period and the energy shock associated with the conflict in Ukraine.
The ECB said the economy was still facing headwinds but that rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time. ECB President Christine Lagarde said the economy had stagnated in the fourth quarter and was set to remain weak in the near term, with households not yet drawing sufficient encouragement from rising real incomes to significantly increase their spending.
FIFTH REDUCTION IN BORROWING COSTS
The January cut was the ECB's fifth rate reduction since it began easing in June 2024, and its fourth in a row. Over the course of this easing cycle, the deposit rate has been brought down from the peak of 4.00% reached during the tightening phase.
Euro area inflation had fallen from the double-digit readings recorded in late 2022. Lagarde reiterated the council's reliance on incoming economic data, particularly readings on underlying inflation and wage growth, to guide future decisions rather than committing to a predetermined rate path.
Bank news that matters, every weekday.
Follow The Global Banker on LinkedIn