The European Central Bank (ECB) has lowered its main interest rate by 25 basis points to 3%. This decision shows a weakening economic condition across the Eurozone. This is the fourth time the ECB has reduced borrowing costs since June, bringing the deposit rate to its lowest level since March 2023.
In its updated economic projection, the ECB said the Eurozone’s growth will be slower than before. The economy is now expected to grow by 1.1% in 2025, down from the earlier prediction of 1.3% made in September. This change shows the difficulties the region is facing, such as weak demand and a less supportive global situation.
The ECB has also changed its earlier tough stance on interest rates. It no longer says it will keep high rates “for as long as needed” to control inflation. Instead, the bank now believes that the impact of higher rates will “slowly decrease” over time, suggesting a more careful approach.
The euro stayed at $1.048 compared to the dollar after a rate cut that many people expected. Market expectations remain firmly aligned with the ECB’s dovish outlook, with traders predicting a series of further reductions. Currently, it looks like the ECB might cut rates by a small amount up to five more times by September 2025, which would bring the deposit rate down to 1.75%.
In contrast, the US Federal Reserve is likely to cut rates by about 0.75 percentage points during the same time. This could bring their target range down to between 3.75% and 4%. The difference between the two shows that the Eurozone economy is weaker than the US economy, which is expected to grow more strongly.
