On Thursday 30 January, the Governing Council decided to lower the three key interest rates of the European Central Bank (ECB) by a further 25 basis points, for the fifth time since June 2024 (see EUROPE 13544/10).
From Wednesday 5 February, the deposit facility rates, the main refinancing operations and the marginal lending facility will be lowered to 2.75, 2.90 and 3.15% respectively.
Citing a “unanimous” decision, ECB President Christine Lagarde indicated that the Governing Council had not discussed either a possible 50 basis point decrease or the trajectory for rates to guarantee price stability of 2% over the medium term.
“We know the direction of travel. The pace, the sequence, the magnitude will be informed by the data we collect, meeting by meeting”, she said, pointing out that the EU institution’s monetary policy was still “in restrictive territory”.
On Thursday 6 March, the Frankfurt Institute will have new growth and inflation projections for the euro area. In the meantime, on Friday 7 February, the ECB will publish a note on the ‘natural’ interest rate, which will provide food for thought on the optimal anchor point.
Mrs Lagarde expressed the Governing Council’s confidence that price rises would reach the 2% target in 2025, after a period of fluctuation at the current level (2.4% in December). Only one parameter is “still holding”, she noted: inflation in the services sector, which rose to 4% in December. As for the impact of wage rises, this has yet to be fully reflected in inflation, but should fade over time, according to the monetary institute.
With regard to the euro area economy, the former head of the IMF assured us that, even if moderate, the recovery was real. However, she indicated that downside risks dominated, citing “geopolitical” risks and possible “trade tensions”. When asked about the impact of the imposition of tariffs by the Trump administration, she said that such measures would “for sure have a global impact”, although at this stage the ECB is not in a position to include this in its estimates, due to a lack of data on the sectors and volumes that would be affected.
Mrs Lagarde also welcomed the European Commission’s presentation the previous day of its ‘Competitiveness Compass’ (see EUROPE 13568/1). “It is crucial to follow-up with concrete, ambitious initiatives”, she said, endorsing the Commission’s approach of retaining the objectives of the ‘European Green Deal’ while remaining flexible on how to achieve them.
Bitcoins. Referring to the debate in the United States about the FED setting up a bitcoin reserve, the ECB President rejected the idea: “The Governing Council’s view is that reserves should be liquid, safe and secure. They should not be plagued as a result of money laundering or criminal activities. I am confident that bitcoins will not enter the reserves of any central banks” of the euro area countries.
Mrs Lagarde regretted the US Federal Reserve’s withdrawal from the NGFS network of central banks and supervisors for the greening of the financial system, which brings together more than 150 countries, convinced that the discussions on macroeconomic scenarios were of “great value”.
Further information: https://aeur.eu/f/fag (Original version in French by Mathieu Bion)