Christine Lagarde, President of the European Central Bank (ECB), explains the ECB’s decision to lower key rates by 25 basis points at the January policy meeting and responds to questions from the press.
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ECB press conference key takeaways
“The economy is set to remain weak in the near term.”
“Manufacturing continues to contract, while services activity is expanding.”
“Conditions for a recovery remain in place.”
“Labor market remains robust.”
“If trade tensions don’t escalate, exports should support recovery as global demand rises.”
“Inflation to fluctuate around its current level in the near term.”
“Longer-term inflation expectations continue to stand at around 2%.”
“Risks to growth remain tilted to downside.”
“Risk of a greater friction in global trade could weigh on Euro area growth.”
“Wages, profits, geopolitical tensions among upside risks to inflation.”
“Downside risks to inflation include low confidence, geopolitical stress.”
“Frictions in global trade would make inflation outlook more uncertain.”
“Premature to have a discussion about terminal rate.”
“We know direction of travel, sequence and magnitude will be informed by data and analysis.”
“We did not even utter 50 basis points.”
“Services and in particular domestic inflation are still resisting, have gone up a little bit.”
“All indicators for wages are heading downward, confirming our confidence.”
“Yield increase is a global process spilled over from United States.”
“Yield increase doesn’t stop monetary policy from transmitting.”
This section below was published at 13:15 GMT to cover the European Central Bank’s (ECB) monetary policy announcements and the immediate market reaction.
The European Central Bank (ECB) announced on Thursday that it lowered key rates by 25 basis points (bps) following the January policy meeting, as expected. With this decision, the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility stood at 2.9%, 3.15% and 2.75%, respectively.
ECB policy statement key highlights
“Inflation has continued to develop broadly in line with staff projections and is set to return to ECB’s 2% medium-term target in course of this year.”
“Domestic inflation remains high, mostly because wages and prices in certain sectors are still adjusting to past inflation surge with a substantial delay.”
“Recent interest rate cuts are gradually making new borrowing less expensive for firms and households.”
“At same time, financing conditions continue to be tight, also because monetary policy remains restrictive and past interest rate hikes are still transmitting to stock of credit, with some maturing loans being rolled over at higher rates.”
“Economy is still facing headwinds but rising real incomes and gradually fading effects of restrictive monetary policy should support a pick-up in demand over time.”
“Will follow a data-dependent and meeting-by-meeting approach to determining appropriate monetary policy stance.”
“In particular, interest rate decisions will be based on its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation and strength of monetary policy transmission.”
“ECB is not pre-committing to a particular rate path.”
“APP and Pandemic Emergency Purchase Programme (PEPP) portfolios are declining at a measured and predictable pace, as Eurosystem no longer reinvests principal payments from maturing securities.”
Market reaction to ECB rate decision
EUR/USD pair showed no immediate reaction to the ECB rate decision and the policy statement. The pair was last seen trading marginally lower on the day near 1.0400.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.05% | 0.05% | -0.86% | -0.07% | 0.02% | 0.05% | 0.02% | |
| EUR | -0.05% | -0.01% | -0.91% | -0.13% | -0.04% | -0.00% | -0.03% | |
| GBP | -0.05% | 0.01% | -0.92% | -0.11% | -0.02% | 0.00% | -0.03% | |
| JPY | 0.86% | 0.91% | 0.92% | 0.81% | 0.90% | 0.89% | 0.89% | |
| CAD | 0.07% | 0.13% | 0.11% | -0.81% | 0.10% | 0.12% | 0.08% | |
| AUD | -0.02% | 0.04% | 0.02% | -0.90% | -0.10% | 0.03% | -0.00% | |
| NZD | -0.05% | 0.00% | -0.01% | -0.89% | -0.12% | -0.03% | -0.04% | |
| CHF | -0.02% | 0.03% | 0.03% | -0.89% | -0.08% | 0.00% | 0.04% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
This section below was published as a preview of the European Central Bank’s policy announcements at 08:00 GMT.
- The European Central Bank is set to lower key rates by 25 bps at the January policy meeting.
- ECB President Christine Lagarde’s words will hold the key to offering fresh policy cues.
- ECB policy announcements are expected to rock the EUR/USD pair and infuse intense volatility.
The European Central Bank (ECB) interest rate decision will be announced on Thursday at 13:15 GMT following the conclusion of the January monetary policy meeting. Markets are anticipating another reduction in key rates, marking a continuation of the easing cycle after December’s rate cut. No updated staff economic projections will published at this meeting.
ECB President Christine Lagarde will hold a press conference at 13:45 GMT, where she will deliver the prepared statement on monetary policy and respond to media questions. The ECB announcements will likely inject intense volatility around the Euro (EUR) against the US Dollar (USD).
What to expect from the European Central Bank interest rate decision?
After lowering key rates in December, the ECB is widely expected to announce another 25 basis points (bps) cut, taking the benchmark rate on deposit facility from 3% to 2.75%. It would be the fourth straight interest rates cut after trimming them in September, October and December 2024.
In December’s post-policy meeting press conference, ECB President Christine Lagarde said that “risks to growth are tilted to the downside,” while the “risk to inflation is now two-sided.”
Speaking on the inflation and interest rate outlook in a CNBC interview last week, on the sidelines of the World Economic Forum (WEF) annual meetings in Davos, President Lagarde said: “We’re confident Eurozone inflation will be at target over the course of 2025,” adding that “gradual moves in rates come to mind at the moment.”
Eurostat’s preliminary data released on January 7 showed that the Eurozone Harmonized Index of Consumer Prices (HICP) rose 2.4% year-over-year (YoY) in December after reporting a 2.2% increase in November. The data aligned with the market forecast. The annual core HICP inflation held steady at 2.7% in the same period.
Eurozone inflation remained elevated and moved slightly from the central bank’s 2.0% target in December. Economists at ABN Amro noted that “the rebound in headline inflation was driven largely by energy, with both the lower base from last year but also recent weakness in the Euro contributing to higher petrol prices, as well as higher gas and electricity prices with Europe running down its gas inventories somewhat faster than usual this winter. “
Subsequently, the accounts of the December ECB meeting published on January 16 showed: “There were still many upside and downside risks to the inflation outlook. More check points had to be passed to ascertain whether disinflation remained on track and kept open the optionality to make adjustments along the way.”
Against this backdrop, the ECB’s communication in the policy statement and President Lagarde’s comments will hold the key to determining the scope and timing of the next rate cuts as the Bank battles concerns over economic growth and potential tariffs by United States (US) President Donald Trump’s administration.
Previewing the ECB meeting, TD Securities analysts said: “This decision should be a fairly straightforward cut. Inflation data has been noisy but on net a touch weaker than expected in its December projections. Growth signs show no real signs of improving, either, adding to the soft backdrop.“ “We expect no real change in messaging around this one, but questions about the neutral rate are likely to crop up in the press conference,” the analysts added.
How could the ECB meeting impact EUR/USD?
In the lead-up to the ECB showdown, the EUR/USD pair is hovering near last Friday’s five-week high of 1.0522. The pair’s further upside remains dependent on the outlook of ECB interest rates.
ECB President Christine Lagarde is expected to maintain the rhetoric that the Bank is not on any pre-determined path on interest rates and will likely remain data-dependent. Lagarde could also reiterate her view of “gradual moves in rates”. In such a scenario, EUR/USD is set to extend the recovery momentum. However, the main currency pair could witness a fresh downtrend if Lagarde mentions that a 50 bps rate cut was discussed as an option in the meeting or expresses concerns over the economic prospects.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“Despite EUR/USD’s recent corrective decline, the pair remains poised for further recovery as the Relative Strength Index (RSI) indicator managed to defend the 50 level on the daily chart. If buyers recapture the 50-day Simple Moving Average (SMA) at 1.0422 on a sustained basis, EUR/USD could make another run toward the 1.0500 level. Further up, the six-week high of 1.0533 will be challenged.”
“If the downside regains traction, the immediate support of the 21-day SMA at 1.0355 will be tested. A fresh sell-off could be seen below that level, opening doors toward the 1.0300 round level. The last line of defense for EUR/USD buyers is seen at the January 17 low of 1.0265.”
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.