ECB cuts interest rates with economy 'to remain weak'

The European Central Bank — the central bank for the 20 countries that use the euro — on Thursday lowered its key deposit rate by a quarter point to 2.75%.

The widely expected move was the ECB's fourth cut in a row — the fifth since June when the Frankfurt-based institution kicked off its current cycle of easing rates.

What we know about the cut

The ECB is conducting a juggling act because cutting interest rates makes borrowing more affordable. While this can encourage growth, it can also fan inflation.

Although inflation has dropped from its peak of 10.6% in October 2022, it remains stubbornly above a 2% target and rose to 2.4% in December on the back of higher energy prices.

The eurozone's economy has stagnated with Germany ending a second straight year of shrinking output.

European Central Bank President Christine Lagarde said the economy would struggle to recover after stagnating at the end of 2024.

Growth "is set to remain weak in the near term", Lagarde said at a press conference. Monetary policy "remains restrictive", she said, indicating that lower borrowing costs were desirable and that more cuts were likely. 

"We have not had a discussion, because it would be premature at this point in time, about the point where we have to stop," Lagarde said. "We know the direction of travel."

The ECB's decision stands in marked contrast to the latest move by the US Federal Reserve, which left interest rates unchanged.

With growth stronger than it is in Europe, US monetary policymakers have said they are in no rush to make more cuts — despite pressure from US President Donald Trump to do so. 

rc/jcg (AFP, AP)