European Central Bank interest rate decision, January 2025

The European Central Bank announced a 25-basis-point interest rate cut on Thursday, its fifth one since the central bank began easing monetary policy in June last year.

The reduction brings the ECB’s deposit facility, its key rate, to 2.75%. Markets had been pricing in an over 90% chance of a 25-basis-point cut ahead of the announcement.

The ECB is grappling with balancing a re-acceleration of euro area inflation in recent months with sluggish economic growth in the region. Headline euro area inflation rose for the third consecutive month to 2.4% in December, after falling below the ECB’s 2% target several months earlier. A renewed pick-up in inflation was expected, as base effects from lower energy prices fade.

Preliminary data released Thursday showed that the euro zone economy flatlined in the fourth quarter of 2024. Economists polled by Reuters had expected growth of 0.1% over the period, following a 0.4% expansion in the three months to the end of September.

Following the announcement, ECB President Christine Lagarde said that the euro area economy “is set to remain weak in the near term.”

Stateside, the U.S. Federal Reserve on Wednesday left interest rates unchanged, in line with expectations. Markets are overall pricing in fewer interest rate cuts from the Fed than from the ECB this year.

Speaking to CNBC’s Silvia Amaro, Ben Emons, founder of Fed Watch Advisors, said that the ECB has more room to cut interest rates compared to the Fed, which he said appeared to be closer to its neutral rate.