ECB's Vujcic: Rate cuts will continue next year
The European Central Bank (ECB) Governing Council member Boris Vujcic said on Saturday that the central bank will go on lowering borrowing costs in 2025, per Bloomberg.
Key quotes
“The direction is clear, it’s the continuation of the direction from 2024, and that is the further reduction of interest rates.”
“That will be determined by data, primarily the inflation rate, will it decelerate, according to our projections, and we will see the impact of the transmission of the monetary policy, and our projections.”
“If there is a trade war, that will be bad for growth in Europe and in the rest of the world,” Vujcic said, adding that trade wars typically fan prices. “We hope we won’t see a trade war, that won’t be good for anyone.”
Market reaction
At the press time, the EUR/USD pair was up 0.03% on the day to trade at 1.0430.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
