European Central Bank to further loosen policy rates in 2025
Date
1/13/2025 8:34:45 AM
(MENAFN) The European Central bank (ECB) plans to further loosen its policy rates in 2025 but must strike a careful balance to avoid both recession and delays in reducing inflation, according to ECB Chief Economist Philip Lane.
Lane explained to Austrian newspaper *Der Standard* that if interest rates drop too quickly, controlling services inflation will become more difficult. However, he also cautioned against keeping rates too high for too long, as this could undermine inflation momentum, potentially causing disinflation to fall below the 2% target rather than stabilizing at that level.
With inflation expected to reach the ECB’s 2% target by mid-2025, the bank implemented four interest rate cuts in 2024 and is planning another four this year, most of which are likely to occur in the first half of 2025.
Lane highlighted that reducing services inflation, which has remained around 4% for much of 2024, is critical to managing overall price increases. This year, wage growth—a key driver of inflationary pressure—is expected to be significantly lower, contributing to a further reduction in inflation, which stood at 2.4% in December.
While acknowledging that economic growth has been near zero for much of the past year, Lane did not foresee recessionary risks severe enough to warrant sharp monetary easing.
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