The ECB cuts interest rates by 0.25%, meeting expectations, but offers no guidance on future actions

The European Central Bank (ECB) reduced interest rates by 25 basis points to 3.50%, in a widely anticipated move. This marks the second rate cut since June, signaling the ECB’s entry into an easing cycle. However, the central bank offered no clear guidance on its future actions.

Markets expect the ECB to continue loosening monetary policy in the coming months, given the favorable environment of slowing inflation nearing the 2% target and high borrowing costs hindering economic growth.

The absence of forward-looking signals from the ECB wasn’t unexpected, despite anticipation from economists and market participants for some hint about further easing or a reaction to the likely Federal Reserve rate cut next week.

In her post-policy meeting press conference, President Christine Lagarde reiterated that the ECB would not commit to a preset rate path and that future decisions would remain data-dependent, made on a meeting-by-meeting basis, leaving markets with little new information.

Many analysts had predicted this cautious approach, arguing that the ECB needs detailed economic data before making significant policy shifts.

The ECB remains divided on its monetary policy direction. Dovish members believe inflation is nearing the target, with a risk of undershooting, while high interest rates are stifling growth and increasing the risk of recession. Meanwhile, hawkish policymakers, who remain in the majority, continue to highlight the persistent risk of inflationary resurgence, opposing any aggressive easing for the time being.