The ECB cut rates by 25bps to 2.75%, with Lagarde signalling further easing if inflation declines. Growth risks persist amid weak confidence and geopolitical tensions. She ruled out Bitcoin as a reserve asset, stressing the need for liquidity and security.
European Central Bank President Christine Lagarde hinted that the path for further rate cuts is clear, as financing conditions remain restrictive amid an economy that stagnated in the fourth quarter.
The ECB cut its three key interest rates by 25 basis points on Thursday in an unanimous decision, as widely expected by market participants, bringing the deposit rate—the benchmark for Frankfurt’s monetary policy—to 2.75%.
The main takeaways from the press conference were support for further monetary easing and the dismissal of Bitcoin as a reserve asset on the ECB’s balance sheet.
More rate cuts are likely as inflation moderates
Lagarde indicated that the ECB will continue to adopt a data-dependent approach, yet hinting that further rate cuts are likely if inflation continues to decline and economic conditions warrant additional support.
“We know the direction of travel,” she said, stressing that the pace and magnitude of future cuts would be guided by incoming data.
According to Lagarde, interest rates are still “currently restrictive” and not at neutral level, thus hinting at further adjustments.
She didn’t close the door to another easing at the next policy meeting March as new information will become available.
Lagarde expressed confidence that inflation will sustainably reach the 2% target in 2025, despite potential near-term fluctuations.
Overall, market participants expect additional three ECB rate cuts by 25 basis points this year.
Economy weakens, trade frictions loom
Lagarde acknowledged that risks to economic growth remain “tilted to the downside,” citing geopolitical tensions and trade frictions as potential headwinds.
The eurozone economy stagnated in the fourth quarter of 2024, with both Germany and France printing an unexpected contraction in their gross domestic product pace.
Regarding tariffs, she stressed that it is too early to assess their precise economic impact, as there is still “nothing that we can actually capture in terms of policy determination, in terms of numbers, in terms of scope.”
Yet, she warned that “greater friction in global trade could weigh on euro area growth by dampening exports and weakening the global economy.”
She noted that declining confidence could slow consumption and investment recovery, with external factors such as Russia’s war in Ukraine and the Middle East conflict further disrupting global trade and energy supplies.
Bitcoin ruled out as a reserve asset
Lagarde firmly dismissed speculation about the ECB holding Bitcoin as a reserve asset.
“Reserves have to be liquid, secure, and safe,” she said, adding that Bitcoin does not meet these criteria due to its volatility and potential risks linked to money laundering and illicit activities.
Her remarks contrast with the unexpectedly open stance of Fed Chair Jerome Powell, who stated on Wednesday that commercial banks “are perfectly able to serve crypto customers as long as they understand and can manage the risks.”
Powell also advocated for clearer regulations, saying, “It would be helpful if there were a greater regulatory apparatus around crypto, and I think that’s something Congress was working on quite a lot.”
Market Reactions
The euro held steady at $1.0430 in afternoon trading in Europe, showing little movement. European equities gained some momentum following a positive open on Wall Street.
The Euro STOXX 50 rose 0.7% by 4:20 p.m. CET, with ASML Holding N.V. leading gains, up 2.9%.
Among national indices, Spain’s IBEX 35 outperformed, buoyed by strength in real estate and banking stocks.