Umair
The European Central Bank cut interest rates on Thursday, for the fifth consecutive time, amid slowing growth in the region’s economy.
Policymakers lowered the bank’s key rate a quarter point to 2.75 percent as inflation remained relatively close to their 2 percent target. The moves comes a day after the U.S. Federal Reserve held rates steady, as the economic outlook of the United States and Europe diverge.
“The disinflation process is well on track,” the bank said in a statement, adding that there were signs that inflation would settle around the target on a “sustained basis.”
Annual inflation in the eurozone was 2.4 percent in December, slightly higher than the previous month as energy prices rose.
The central bank’s policymakers have differing perspectives about the outlook for inflation. Some emphasize signs of persistent inflationary pressures, such as price growth in the services sector, which has held stubbornly around 4 percent. Others, including the bank’s chief economist, Philip R. Lane, have said that if borrowing costs stay too high for too long then inflation could fall too low.
The eurozone’s economy stagnated in the fourth quarter of last year, weakening after it expanded 0.4 percent in the previous quarter, data published on Thursday showed.
The unexpected slump increases pressure on central bank officials to cut interest rates to help generate economic growth in a region that is troubled by its waning competitiveness with the United States and China and is extremely vulnerable to trade disruptions. The German economy, the bloc’s largest, shrank for the past two years as high energy costs and interest rates weighed on businesses and consumers, and political uncertainty ahead of elections next month has been exacerbating the issue.
But officials at the central bank have said that governments need to make cross-border business and investments easier, and not rely on monetary policy to stimulate economic growth.
The Federal Reserve held interest rates steady on Wednesday after officials said they would “move cautiously” amid lingering inflation risks and a strong labor market.
Last year, the Fed cut rates by a percentage point, the same as the European Central Bank. Looking ahead, the U.S. central bank is not expected to deliver many more rates cuts, despite President Trump pushing for them. His policies, such as cutting back on immigration and increasing import tariffs, could exacerbate inflationary pressures. Traders expect the eurozone’s central bank to cut rates at most of its meetings in the first half of this year.
So far, Europe has not been the central focus of Mr. Trump’s plans to increase tariffs. But a sense of how disruptive such an event would be came on Wednesday from Canada, where the central bank cut interest rates and dropped its guidance on future policy moves amid the threat of Mr. Trump’s proposed tariffs of 25 percent, which could be imposed as soon as Saturday.
