The European Central Bank (ECB) announced a significant monetary policy shift at its first meeting of 2025, lowering its Deposit Rate by 25 basis points to 2.75%. This decisive move comes amid the ECB's ongoing efforts to address weak economic growth and align inflation rates with their target. The bank has reiterated its commitment to achieving a 2% inflation rate by late 2025, indicating a careful, data-dependent approach to future policy adjustments.
The ECB's monetary policy decisions are set to be guided by data and will be reassessed at each meeting. This strategy reflects the bank's intent to remain flexible and responsive to changing economic conditions without committing to a predetermined rate path. The ECB anticipates further 25 basis point reductions in March, April, June, and September, aiming for a terminal policy rate of 1.75% by the end of September.
The expectation is that these incremental cuts, totaling 100 basis points, will alleviate domestic price pressures and stimulate economic activity. As of now, the Deposit Rate stands at 2.75%, but the ECB projects it will decrease to 1.75% by September, with the policy rate potentially reaching a low of 2.25%.
The ECB's decision to adjust rates is influenced by benign inflation levels and subdued economic activity indicators. By adopting a meeting-by-meeting approach, the central bank underscores its commitment to maintaining economic stability while addressing the current challenges facing the Eurozone.