“In current conditions of rising uncertainty, [the governing council] will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance,” said Christine Lagarde, president of the European Central Bank, on 6 March 2025, while announcing the second 25 basis points cut to the key banking rates in the euro area this year. Archive photo: European Central Bank

“In current conditions of rising uncertainty, [the governing council] will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance,” said Christine Lagarde, president of the European Central Bank, on 6 March 2025, while announcing the second 25 basis points cut to the key banking rates in the euro area this year. Archive photo: European Central Bank

Despite a slight uptick in euro area inflation in February, the European Central Bank proceeded with a 25bps rate cut, prioritising economic support over inflationary concerns as growth remained sluggish.

The European Central Bank’ policy-setting governing council has cut euro area interest rates by 25 basis points for the sixth consecutive time, bringing the total reduction since June 2024 to 150bps. The latest decision, on 6 March 2025, comes despite a slight rise in inflation in February, with both core and services inflation remaining above the ECB’s 2% target.

In effect, the deposit facility rate (DFR), main refinancing operations (MRO) rate and marginal lending facility rate will be lowered to 2.50%, 2.65% and 2.90% respectively, effective from 12 March 2025.

ECB president Christine Lagarde stated that the cut reflects the governing council’s revised inflation outlook and ongoing economic conditions. The decision was widely by economists and signals the ECB’s commitment to balancing inflation control with economic growth.

Lagarde emphasised that the disinflation process remains on track, with inflation evolving largely as anticipated in previous ECB projections. She noted that the latest forecasts suggest headline inflation will average 2.3% in 2025 before gradually stabilising around the ECB’s 2% medium-term target. However, domestic inflation pressures persist, primarily due to wage adjustments lagging behind the previous inflation surge.

Lagarde argued that the rate cuts are making borrowing less expensive for firms and households. However, the transmission of past rate hikes continues to weigh on lending activity, with overall credit growth remaining subdued. While easing monetary policy is expected to support demand, economic growth projections for 2025 and 2026 have been revised downwards, reflecting weaker exports and investment amid heightened global uncertainty.

Looking ahead, Lagarde reiterated that the ECB will take a data-dependent and meeting-by-meeting approach in determining the future path of interest rates. She stressed that the governing council remains committed to ensuring inflation stabilises at its 2% target in a sustainable manner, without pre-committing to any specific rate trajectory.

The next monetary policy meeting will take place in six weeks’ time, on 17 April 2025.

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