FRANKFURT – The European Central Bank is widely expected to continue lowering its interest rates Thursday amid increasing concerns about the Eurozone economy and the intentions of the new US administration under President Donald Trump.
An economists’ poll forecasts a 25-basis point cut in the bank’s key rates, which would bring the deposit rate to 2.75% and the refinancing rate to 2.90%.
The expectation of a rate cut should come as no surprise as a number of members of the ECB Governing Council hinted at such a move in the run up to this week’s two-day meeting, which starts Wednesday.
Traders also expect a cut, and they predicted it would be the first of four this year, with a March reduction also likely. Should this prediction prove true, such moves would take the deposit rate to 2%, smack dab in the middle of the 1.75-2.25% bracket ECB President Christine Lagarde recently called the bank’s expected neutral range.
As the currency area’s growth falls and inflation rises, policymakers seem unconcerned about the latter, which would normally demand higher rates. Consumer price growth has accelerated for three straight months, pushing to 2.4% in December, but the latest increase was largely due to base effects, according to analysts. Furthermore, the bank predicted rising prices around the end of the year, noting that inflation should abate in the months ahead, a forecast underpinning the dovish tilt in Frankfurt.
The January inflation report for the Eurozone is scheduled to be released Monday at 10:00 GMT.
Staring down the double barrel of weak growth and Trump
On the subject of new data, euro area GDP numbers for Q4 are due Thursday morning, just hours before the ECB announces its monetary policy decisions. Forecasts call for a slowdown in growth to 0.1% q/q from 0.4% in the third quarter.
A preliminary report from Germany said Europe’s largest economy contracted last quarter, a reading economists expect to be confirmed Thursday morning. So, growth worries remain, and when it’s not trying to hold down inflation to its target of 2% over the medium term, the ECB is tasked with supporting the economy, which conventional wisdom says can be done by cutting rates.
“A major concern is the recent deterioration in consumer confidence,” noted Mariano Cena at Barclays. “After gradually improving in the first three quarters of 2024, consumer confidence declined in both November and December. Households have downgraded their assessment of the economic outlook and their expectations for major purchases. This subdued confidence primarily reflects the current environment of heightened domestic and external uncertainty, further fuelled by rising concerns about the employment climate in the euro area.”
And then there is the Trump factor. With the US president threatening tariffs on EU goods both before and after his inauguration, companies on the Continent are bracing for possible policy follow-through, especially after Trump ordered 25% import duties on Colombian goods over the weekend after Bogota refused to accept citizens deported from the US. Following the announcement, Colombian officials acquiesced, a back-and-forth that sets a worrying precedent for those forced to negotiate with US officials in days and months ahead. A trade war with the US would come at a time when Europe is barely eking out growth, and major levies on goods from the region could be catastrophic for many businesses based there.
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function join_player_channel(data) {
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session_info.connection_protocol = data.protocol;
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session_info.session_email = data.session_email;
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session_info.http_referrer = data.http_referrer;
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function start_log() {
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var months = ['Jan','Feb','Mar','Apr','May','Jun','Jul','Aug','Sep','Oct','Nov','Dec'];
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session_info.mean_opinion_score = data.mean_opinion_score;
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- Analysts expect key rates to fall 25bps
- Economic slowdown raises concerns
- Trump renews threats of trade sanctions
- Rate decision due Thursday at 13:15 GMT / 14:15 CET
- Press conference set for 13:45 GMT / 14:45 CET
By Eric Culp
European Editor, LiveSquawk News
@eculp.bsky.social
@EricCulpLS
29 January 2025 | 10:00 GMT
FRANKFURT – The European Central Bank is widely expected to continue lowering its interest rates Thursday amid increasing concerns about the Eurozone economy and the intentions of the new US administration under President Donald Trump.
An economists’ poll forecasts a 25-basis point cut in the bank’s key rates, which would bring the deposit rate to 2.75% and the refinancing rate to 2.90%.
The expectation of a rate cut should come as no surprise as a number of members of the ECB Governing Council hinted at such a move in the run up to this week’s two-day meeting, which starts Wednesday.
Traders also expect a cut, and they predicted it would be the first of four this year, with a March reduction also likely. Should this prediction prove true, such moves would take the deposit rate to 2%, smack dab in the middle of the 1.75-2.25% bracket ECB President Christine Lagarde recently called the bank’s expected neutral range.
As the currency area’s growth falls and inflation rises, policymakers seem unconcerned about the latter, which would normally demand higher rates. Consumer price growth has accelerated for three straight months, pushing to 2.4% in December, but the latest increase was largely due to base effects, according to analysts. Furthermore, the bank predicted rising prices around the end of the year, noting that inflation should abate in the months ahead, a forecast underpinning the dovish tilt in Frankfurt.
The January inflation report for the Eurozone is scheduled to be released Monday at 10:00 GMT.
Staring down the double barrel of weak growth and Trump
On the subject of new data, euro area GDP numbers for Q4 are due Thursday morning, just hours before the ECB announces its monetary policy decisions. Forecasts call for a slowdown in growth to 0.1% q/q from 0.4% in the third quarter.
A preliminary report from Germany said Europe’s largest economy contracted last quarter, a reading economists expect to be confirmed Thursday morning. So, growth worries remain, and when it’s not trying to hold down inflation to its target of 2% over the medium term, the ECB is tasked with supporting the economy, which conventional wisdom says can be done by cutting rates.
“A major concern is the recent deterioration in consumer confidence,” noted Mariano Cena at Barclays. “After gradually improving in the first three quarters of 2024, consumer confidence declined in both November and December. Households have downgraded their assessment of the economic outlook and their expectations for major purchases. This subdued confidence primarily reflects the current environment of heightened domestic and external uncertainty, further fuelled by rising concerns about the employment climate in the euro area.”
And then there is the Trump factor. With the US president threatening tariffs on EU goods both before and after his inauguration, companies on the Continent are bracing for possible policy follow-through, especially after Trump ordered 25% import duties on Colombian goods over the weekend after Bogota refused to accept citizens deported from the US. Following the announcement, Colombian officials acquiesced, a back-and-forth that sets a worrying precedent for those forced to negotiate with US officials in days and months ahead. A trade war with the US would come at a time when Europe is barely eking out growth, and major levies on goods from the region could be catastrophic for many businesses based there.
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