by Francisco Cardoso 
Luis de Guindos, Vice-President of the European Central Bank, confirms the trajectory of interest rate cuts as inflation aligns with targets. Learn about recent decisions and market expectations for 2025.
The Vice-President of the European Central Bank (ECB), Luis de Guindos, stated during an event organised by the Madrid Business Forum that no one knows “what the end” of the current monetary policy cycle in the eurozone will be, although he argued that the downward trajectory is clear as long as inflation projections are confirmed.
“No one knows what the end will be, but the journey’s trajectory is relatively clear, provided the projections hold,” said the economist and former Economy Minister.
Luis de Guindos downplayed the debate over interest rates and their intervals, emphasising that this tool operates in two phases: first, through banks’ financing conditions, which are later reflected in household and business decisions on consumption and investment, “so there is a certain lag.”
Last week, at its final meeting of the year, the ECB announced another interest rate cut, the fourth since June and the third consecutive one, which will take effect on 18 December. From that date, the official interest rate will be set at 3%.
During the meeting, the ECB Governing Council discussed the possibility of a 50 basis point cut, referred to by the market as a “jumbo” cut, as confirmed by the institution’s President, Christine Lagarde, at the customary post-meeting press conference.
“There were some discussions with proposals to consider possibly 50 basis points, but the general consensus, which everyone agreed on, was that 25 basis points was indeed the right decision,” she said. The top official also acknowledged that inflation was “genuinely on track” to reach the 2% target in the medium term, which gave sufficient confidence to approve a 25 basis point cut. This proposal was unanimously agreed upon by all members of the Governing Council.
How will interest rates evolve from now on?
The ECB President also devoted much of her explanation to clarifying the noticeable change in the Governing Council’s communication. The institution no longer expresses a commitment to keeping interest rates at sufficiently restrictive levels for as long as necessary. However, Lagarde stressed that there is no prior commitment regarding the pace of upcoming decisions, which will continue to be made on a meeting-by-meeting basis, based on available data.
Even so, much of the market already predicts that the eurozone’s chief monetary and financial authority may announce a 50 basis point cut at its first meeting of 2025, scheduled for 30 January. This comes as inflation approaches the ECB’s 2% target and economic activity in the eurozone weakens further.
According to investment bank Renta 4, “The ECB has removed from its discourse the reference to the need to maintain a restrictive policy, which leads the market to increase its expectations of a 50 basis point rate cut in January, compared to the previous 25 basis points. Even so, Lagarde states that decisions will be made meeting by meeting and will depend on the data, while the market projects the final rate level at around 1.75%. According to the ECB President, the European neutral rate could be between 1.75% and 2.5%, in any case above historical levels (since inflation will be structurally higher in the future).”
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IN: idealista.pt
