The European Central Bank (ECB) ruled out on Thursday, March 6, no option for the future of its guiding rates, recognizing that it was, like never, confronted with “Risks and uncertainty everywhere” Due to tensions with the United States and the massive investments expected in Europe.
Faced with a situation “Who radically changes from one day to the next”Christine Lagarde, the president of the institution, did not hide that the Guardians of the Euro were sailing in sight.
As expected, they have again lowered the main key interest rate of 0.25 percentage points to mark their confidence in the gradual return of inflation to the target of 2 %.
But the geopolitical upheavals in progress on both sides of the Atlantic do not allow us to say if this cycle of lowering of the rates will stop quickly, extend a little, or even last longer than expected to support the economy.
The deposit rate, which refers, was increased to 2.50 %. This makes it the sixth drop in the rent of money since June, after the peak reached by the key rates in 2023, in a context at the time of high inflation.
To determine the continuation of the monetary cap, the ECB must rarely juggle between objectives sometimes difficult to reconcile: mastering inflation while supporting growth in a euro zone weakened by successive crises.
Fever on Germany borrowing rates
The Euro guards recalled Thursday in their statement that rates were now at a level at which monetary policy “Became significantly less restrictive” Because households and businesses would pay their cheaper loans.
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This effect strengthens the expectations of a break up in rate drops. But the economic equation has been much complicated in recent weeks. The radical decision of the future German government to increase public debt to rearm and relaunch the economy caused this week a thrust of fever of the borrowing rates of Germany, unprecedented since reunification.
This tightening of the financial conditions occurs while the activity of the euro zone remains low and is added the imminent taxation of reciprocal customs duties by the United States, which threatens to provide recession in Europe. “An escalation of trade tensions would reduce the growth of the euro zone by slowing down exports and weakening the world economy”Warned MMe Lagarde.
On the other hand, the colossal expenses provided by Germany, freeing itself from the dogma of rigor, could boost European growth and inflation. Which of these effects will win? Impossible to say this at this stage, recognized the central banker. “We must understand how it will work, what the calendar will be, what will be funding, so that we can draw the conclusions and assess the contribution to growth and the impact on inflation”she explained.
“Being agile”
The only solution in the face of series shocks: “We will have to be agile to react to the data”According to MMe Lagarde. “If the data indicate that the most appropriate monetary policy is a decline, there will be a drop; If, on the other hand, the data indicates that the most appropriate decision is not to decrease, there will not be one ”She was content to announce.
The evolution of the conflict in Ukraine, a country which can no longer count largely on American aid in the face of the Russian aggressor, could also influence the economic trajectory and therefore the decisions of the ECB. These risks are not yet fully integrated into the latest economic projections published Thursday by the institution.
The ECB has enhanced its inflation forecasts for 2025 because of the increase in energy prices and lowered its growth forecasts for this year and the next in the face of the drop in exports and the persistent weakness of investments.
The Frankfurt institution tables an inflation of 2.3 % in 2025 – against 2.1 % previously – then 1.9 % in 2026 and 2.0 % in 2027. GDP in the euro zone should grow by 0.9 % in 2025, 0.2 point less than the estimate of December. It would climb to 1.2 % in 2026 and 1.3 % in 2027.
