The ECB holds Trump’s pulse and cuts interest rates other 0.25 points at 2.75%

The European Central Bank (ECB) endures (at least for the moment) the pulse that the new president of the United States, Donald Trump, maintains with the rest of the world. The monetary institution has cut on Thursday the official interest rates other 0.25 points to 2.75%. This is the fourth consecutive drop, and the fifth since June, although, on the contrary, the North American Federal Reserve (Fed) has stopped the relief of financing conditions in the first global power due to the risk of a escalation that an escalation of the commercial war causes a rebound of inflation.

The ECB prioritizes the need to insufflate oxygen to economic activity, given the weak that GDP advanced (gross internal producer) of the whole of the euro partners in 2024.

“The interest rate of 2.75% is still restrictive, too restrictive for the current state of weakness of the eurozone economy,” warns the global manager of Macroeconomics of ING Research, Carsten Brzeski. And he adds: “Although some argue that monetary policy can do very little to solve structural problems, political instability and uncertainty in many countries will force the ECB to continue doing heavy work.”

The moderation of inflation towards the objective of 2% on average in the eurozone – in Spain it rose to 3% in January by fuels and electricity – allows the monetary institution that Christine Lagarde presides to leave the noise of tariffs in the background, Commercial war and tax declines that come from the United States, and that is a threat of a new rebounds of price increases, mainly in the American power, but also to this other side of the Atlantic. “The disinflation process continues to progress,” says the official statement of the Governing Council of the ECB, after this Thursday meeting.

“Greater friction in global trade would cause inflation in the Eurozone to be more uncertain,” the president of the European institution, Christine Lagarde, admitted at a press conference. Although the French stressed that, for now, the ECB does not have enough certainties about what is to come to do an analysis. “It is premature to talk about where interest rates must be stopped,” he said. But he also clarified that the possibility of a larger cut (of 0.5 points) at this January meeting “has not been debated at all, we do not even pronounce the figure five.”

The paradox is that there, in the United States, on Wednesday, Trump harshly criticized the Fed decision to maintain interest rates in the range between 4.25% and 4.5%. “If the Federal Reserve had dedicated less time to [diversidad, equidad e inclusión]gender ideology, ‘green’ energy and false climate change, inflation would never have been a problem, ”argued the president of the United States. The president of the Fed, Jerome Powell, had advanced to these political interference and said that the Central Bank “does not need to rush to adjust its monetary policy.”

Downloads of interest rates in the Eurozone

Back to the Eurozone, we must remember that the ECB began to relieve financing conditions in June 2024 from the maximum of 4% to where it took official interest rates in the fall of 2023, after a process of monetary austerity (to make mortgages and loans in general) that started in 2022 to fight inflation.

The objective of the “hardening” cycle of monetary policy was to drown the consumption capacity of the families and investment of companies to moderate their price increases. A strategy of “killing flies to cannon shots” which is now the opposite of the weakness of the activity, especially in the public and private investment section of Germany.

“The recent declines of interest rates agreed by the Governing Council are gradually lowering new credits for companies and homes. At the same time, financing conditions continue to be restrictive, due among other things to the fact that monetary policy also remains since the previous increases in interest rates continue to be transmitted to the living balance of the credit granted, with renovations to interest rates higher of some loans that expire, ”explains the ECB statement.

“The economy still faces adverse factors, but the improvement of real income and the gradual disappearance of the effects of restrictive monetary policy should over time support a recovery of demand,” continues the declaration of the monetary institution.

“This ‘relaxation’ of the ECB is a key factor for the recovery of European growth. In fact, the last survey [de la propia institución monetaria] Among the eurozone banks indicates that the granting of loans to companies has harden again and that the banks are more cautious, ”explains Sebastian Paris, director of analysis of the French manager LBP AM. “The main stage of the ECB is a continuation of the uninflationary trend with a very slow recovery of real growth, but this trajectory is still subject to the risk of stagflation [estancamiento de la actividad económica y un nuevo repunte de las subidas de precios, lo que se traduce en un preocupante proceso empobrecedor]”, Warns, meanwhile, Eric Dor, director of Economic Studies of IESEG School of Management.

The other ECB tools

Official interest rates are only one of the ECB tools. Your money creation programs to buy debt [bonos] From Eurozone countries and companies are their other key lever of monetary policy. “Even if it continues to lower its reference interest rates, the institution has abandoned all gross purchases of financial assets, either within the app framework [el programa que diseño para favorecer la salida de la pandemia] o part pepp [el programa de emergencia de la pandemia]. Therefore, the ECB will practice a passive quantitative hardening, ”observes Eric Dor.

“The stock of financial assets in the hands of the Eurosystem [es decir, del BCE, a través de los bancos centrales de cada socio del euro] It will be reduced as the bonds reach their expiration and are amortized. This is an argument in favor of new gradual cuts of official interest rates, even if the risks for inflation persist, ”adds this teacher.

Stimulate investment

In the current international context of the boom of protectionist policies – with the threat of tariffs in the United States and China – and climate emergency, an increase in public and private investment is crucial to raise the energy and technological independence of the Eurozone, and to reactivate some of the strategic industries that remain stagnant in Germany or in France. This is contemplated by the famous ‘Draghi Report’, the plan requested by the European Commission to the former president of Italy and the ECB itself on the challenges of the EU economic bloc.

In that line, Susana Martín, a researcher of Revo Sustainable Prosperity, defends that the ECB “manages monetary policy so that there is cheap ‘green’ credit. For example, “the credit to the energy renewal of buildings, the installation of renewable energy and all the necessary investments for a fair transition must have a lower interest rate,” he says.

Meanwhile, “polluting industries must have a financial cost greater than sustainable. In addition, the ECB must take into account the distributive effects of its policy, so that they stop giving free money to the bank, as they have done in the past: 152,000 million euros has paid the ECB to the bank in 2023 for the ease of ease of deposit. For doing nothing, in short, ”warns this expert.