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European Central Bank Expected to Lower Interest Rates
According to analysts at Citi, the European Central Bank (ECB) is likely to implement consecutive interest rate reductions of a quarter percentage point at each meeting “until at least the summer.” This comes amidst ongoing concerns regarding sluggish growth and decreasing inflation within the Eurozone.
Economists are anticipating a rate cut of 25 basis points at the ECB’s upcoming policy meeting, building on four previous reductions last year that aimed to stimulate the Eurozone economy. The backdrop of these expectations was influenced by a recent decision by US President Donald Trump, who refrained from instituting extensive new import tariffs on the European Union.
This development prompted traders to increase their speculation regarding future rate cuts, with financial markets now predicting a series of four reductions throughout 2025. If this projection holds, it would lower the deposit rate paid by Eurozone banks from the current 3.0% to 2% by year-end.
Central bank policymakers have solidified their projections for a rate decrease during the ECB’s meeting scheduled for January. ECB President Christine Lagarde has openly discussed the necessity of further interest rate reductions. During the World Economic Forum last week in Davos, Switzerland, she emphasized that a “gradual move is certainly something that comes to mind at the moment.”
In their analysis, Citi analysts indicated that the potential outcomes for the first half of the year appear to be relatively stable, suggesting a low likelihood of a rapid rate cut acceleration and only minimal risk of a slowdown. They foresee the ECB potentially continuing to lower its key deposit rate “likely beyond” the summer, aiming for a level “well below 2%.” However, they caution that the trajectory of these cuts may become “much more uncertain in the second half of the year,” primarily due to worsening international relations which could yield unforeseen challenges for the Eurozone economy.
Source
www.investing.com