The President of the European Central Bank (ECB), Christine Lagarde, hinted that the institution is willing to halt interest rate cuts in April. This is due to increased spending in Germany and the consequent rise in the yield of debt. The ECB has decided to lower its interest rates by a quarter point, to 2.5%, for the fifth consecutive time in six months, due to decreased inflation in the euro area and the need for a less restrictive monetary policy.
This is the sixth time the ECB has reduced the cost of money since June 2024. The deposit rate, which better reflects the benchmark rate in markets, has been lowered to 2.5%, its lowest level since February 2023. Lagarde stated that the decision was agreed upon by the Governing Council of the central bank, with one member abstaining.
Amid great uncertainty, Lagarde highlighted that upcoming decisions regarding interest rates will depend on economic data. If the situation indicates that it is appropriate to cut rates, it will be done; otherwise, a pause will be taken. Additionally, she pointed out that increased spending on defense and infrastructure in Germany could boost growth and inflation due to rising demand.
On the other hand, trade tensions, especially the trade war with the United States, could affect inflation in the euro area. Lagarde warned about the negative effects of tariffs and mentioned that they could reduce growth, hinder exports, and weaken the global economy. The ECB also indicated that international uncertainty is affecting investment and competitiveness in the region.
Moreover, the ECB has forecast an increase in general inflation for 2025, reaching 2.3%, due to a rise in energy prices. However, lower economic growth is expected for the following years, attributed to a decrease in exports and uncertainty in trade policies.
In summary, the ECB has decided to cut interest rates again, but has left open the possibility of a pause in April. Economic uncertainty, trade tensions, and increased spending in Germany are key factors that will influence future decisions of the central bank.
