The European Central Bank (ECB) delivered its sixth interest rate reduction since June, lowering rates by 25 basis points as widely anticipated by market analysts, bringing the deposit facility rate to 2.5%.
The decision marks the fifth consecutive cut since September, as the central bank continues its measured approach to monetary policy adjustment amid an ongoing inflation normalisation process.
In its policy statement, the ECB noted that “the disinflation process is on the right track” and that recent projections broadly align with previous forecasts, suggesting a steady path toward its medium-term inflation target.
The Governing Council’s latest economic projections show headline inflation is expected to average 2.3% in 2025, before declining to 1.9% in 2026 and stabilising at 2.0% in 2027.
The slight upward revision for 2025 primarily reflects stronger energy price dynamics, while core inflation excluding energy and food is projected at 2.2% for 2025, gradually declining to 2.0% in 2026 and 1.9% in 2027.
“Most underlying inflation indicators suggest inflation will stabilise around the Governing Council’s 2% medium-term target on a sustainable basis,” the statement read, while acknowledging that “domestic inflation remains elevated, mainly because wages and prices in certain sectors continue to adjust to the previous sharp rise in inflation with significant delay”.
A recent Bloomberg survey showed near-unanimous expectations for Wednesday’s 25 basis point cut, but significant disagreement about the future trajectory of rates.
Some analysts project no further reductions, while others anticipate the ECB’s key rate could fall to as low as 1% by early 2026.
Economic challenges in the eurozone remain significant, with the ECB downgrading its growth projections to 0.9% for 2025, 1.2% for 2026, and 1.3% for 2027.
The downward revisions for 2025 and 2026 reflect “lower exports and continued subdued investment, partly resulting from high trade policy uncertainty and broader economic policy uncertainty,” according to the statement.
The central bank also confirmed that its Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios continue to decrease at a “measured and predictable pace” as the Eurosystem no longer reinvests principal payments from maturing securities.
(information from capital.gr)
