The European Central Bank (ECB) provided more clarity on Monday about the European Union’s (EU) interest rate policy for the coming year. ECB President Christine Lagarde stated that interest rates are expected to fall further in 2025. This follows four interest rate cuts that were already implemented earlier this year. The decline is possible because inflation now appears to be largely under control, reducing pressure on borrowing capacity within the EU.
Inflation rates in Europe averaged 2.3% last month, close to the 2% target. Last Thursday, the ECB decided to lower interest rates from 3.25% to 3%, partly thanks to favorable inflation figures. The ECB will make another decision on interest rates on January 30. Lower interest rates make borrowing cheaper, which can help businesses grow or provide them with financial support in difficult times.
What does this mean for the crypto market?
Interest rate cuts have a direct effect on liquidity in the market. When borrowing becomes cheaper, more money becomes available to invest, which is beneficial for risky assets such as shares and cryptocurrencies. In addition, saving on traditional savings accounts and in Money Market Funds (MMF) yields less at lower interest rates, making investors more inclined to reinvest in alternative assets such as crypto.
Impact of US Interest Rates
While the European market is large enough to have a noticeable impact on crypto, the focus of most investors is on US interest rates. If the Federal Reserve cuts interest rates further, this could result in a significant increase in crypto prices. Historically, riskier investments such as altcoins benefit the most during periods of lower interest rates. This could potentially lead to new all-time highs for popular coins such as XRP and Ethereum (ETH).
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Source: https://newsbit.nl/ecb-verduidelijkt-rentebeleid-renteverlagingen-op-komst-in-2025/
