MNI ECB WATCH: ECB Cuts 25BP, Nears End Of Cycle

The European Central Bank as expected cut its benchmark deposit rate by 25 basis points on Thursday for a seventh consecutive meeting, bringing it to 2%, with President Christine Lagarde indicating that the ECB is nearing the end of its easing cycle with policy settings in a good position to navigate uncertain conditions. (See MNI SOURCES: Risks Tilt To Downside As ECB Mulls Path Below 2% )

"With today's cut, that's the current level of interest rates, we believe that we are in a good position to navigate the uncertain conditions that will be coming up," she said, adding that the decision was "almost unanimous", with only one Governing Council member against.

Financial markets interpreted Lagarde’s communication hawkishly, with bets on further rate cuts reduced by 10 basis points for 2025 after the press conference. The euro gained by 0.5% against the dollar.

Lagarde pushed back on the idea that a downward revision in the ECB’s 2026 inflation projection to 1.6% could open the door for further cuts, stressing that the change was mainly explained by lower energy prices and a stronger euro and noting that the pace of increase in consumer prices should be back on track by 2027 at 2%. She added that core inflation projections had barely changed from March.             

NO VICTORY LAP

The president also noted that the economy performed better than expected in Q1, partly because of front-loading of exports and added that Eurostat’s preliminary estimate of 0.3% expansion could be revised up. The ECB’s growth projections were almost unchanged at 0.9% for this year, 1.1% in 2026 (0.1 percentage point less) and 1.3% in 2027.

Given high uncertainty, the ECB will persist with its data-dependent and meeting-by-meeting approach. In answer to a question Lagarde avoided any declaration of victory over inflation.

"Victory laps are always nice but there is always another battle,” she said. "We will assess, as and when data come in, whether or not that position is secure in order to deliver on our 2% target.”

The ECB published alternative scenarios for lower growth and inflation in the case of greater trade tensions and higher growth and “to lesser extent” higher inflation if trade tensions resolve.

Asked about reported comments by World Economic Forum founder Klaus Schwab that she had discussed leaving her role earlier, she said that she remained committed to finishing her term.