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March 06, 2025EUROPEAN CENTRAL BANK MONETARY POLICY The European Central Bank (ECB) announced today that it would reduce the three key ECB interest rates by 25 basis points. The interest rates on the deposit facility, main refinancing operations and the marginal lending facility will be at 2.50%, 2.65%, 2.90% respectively effective March 12th.
The economic activity in the first two months of 2025 grew at a similar pace set last year. High uncertainty internally and abroad is holding back investment and competitiveness challenges that weigh on exports. Manufacturing continues its decline while services activity is growing.
Resilient labour markets and rising household incomes boost consumption, although consumer confidence is still fragile. Unemployment rate stayed at 6.2% in January 2024 and employment is estimated to have grown 0.1% in the last quarter of 2024. Labour demand has moderated, and employment growth is likely to have slowed in the first two months of 2025. Real GDP is expected to rise to 0.9% in 2025 and 1.2% in 2026.
Annual inflation increased to 2.4% in February 2025, down from 2.5% in January. Energy price inflation declined TO 0.2% following a strong gain in January. Food price inflation rose to 2.7% from 2.3% in January. Service inflation eased to 3.7% and goods inflation rose up to 0.6% in January. Most indicators are pointing to a return to the medium-term target and recent wage negotiations point to a continued moderation in labour cost pressures. In 2025 inflation is projected to be around 2.3% and 1.9% in 2026.
Escalation in trade tensions could result in lower Euro Area growth by dampening exports and weakening the global economy. On the other hand, growth could be higher if easier financing conditions and falling inflation allow for higher domestic consumption and investment.
The asset purchase programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem does not reinvest all principal payments from maturing securities.
The Governing Council notes it is determined to see inflation sustainably stabilise at its 2.0% medium-term target and is ready to adjust all instruments within their mandate to achieve their goal. There is no pre-committed rate path. The next scheduled monetary policy meeting will be on April 17, 2025.
Source: European Central Bank: Monetary Policy Decisions; Monetary Policy Statement (Press Conference); Economic Projections
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