FRANKFURT: The European Central Bank cut interest rates for the fourth time this year on Thursday and kept the door open to more easing as the euro zone economy is dragged down by political instability at home and the threat of a fresh US trade war.
The ECB has been easing policy quickly for months as inflation worries have largely evaporated. The debate is now shifting to whether it is cutting rates fast enough to support an economy that is falling behind global peers and has been skirting recession for over a year.
Worried over this increasingly dark outlook, and what ECB President Christine Lagarde described as “uncertainty … in abundance”, a handful of policymakers even pushed for a bigger half-percentage-point rate cut to buffer the euro zone economy.
But they settled unanimously on 25 basis points, Lagarde said, taking the ECB’s deposit rate, the benchmark for borrowing costs across the 20-nation currency bloc, to 3pc.
The central bank also removed an earlier reference in its guidance to keeping interest rates sufficiently restrictive, which economists took as a sign that further policy easing is coming — perhaps as soon as January, as inflation is seen settling at the ECB’s 2pc target in early 2025.
“The disinflation process is well on track,” Lagarde told a press conference. “The element which has changed … is the downside risk, particularly downside risk to growth, which is more elaborate.”
Published in Dawn, December 13th, 2024
