Today’s market analysis on behalf of Michael Brown Senior Research Strategist at Pepperstone
30th January 2025
As widely expected, the ECB delivered a 25bp cut this lunchtime, at the conclusion of this year’s first policy meeting, lowering the deposit rate to 2.75%, marking the 5th rate cut of the cycle.
Accompanying the decision to lower borrowing costs was guidance with which market participants are now extremely familiar. Consequently, policymakers reiterated that they will continue to follow a ‘data-dependent’ and ‘meeting-by-meeting’ approach, while once more noting that no ‘pre-commitment’ is being made to following a particular policy path.
Attention will now fall on President Lagarde’s press conference, which may shed more light on today’s policy deliberations.
Primarily, participants will likely seek clarity on the degree of unanimity around today’s decision to deliver a 25bp cut, and whether a larger reduction was discussed. Furthermore, comments on whether the ECB is prepared to take the deposit rate below neutral, as well as the potential impact of President Trump’s protectionist trade policies on the already-anaemic eurozone growth outlook.
Taking a step back, policymakers appear not to have wanted to ‘rock the boat’ this time around, and are unlikely to want to do so moving forwards, with a predictable pace of 25bp cuts at each of the next few meetings remaining the base case, until the Governing Council has moved the deposit rate back to neutral. It remains likely that rates will need to fall below this neutral level (around 2%) as the year progresses, as risks of inflation undershooting the 2% target grows, and as risks to the growth outlook remain firmly tilted to the downside.
