ECB Cuts Interest Rates Amid Economic Uncertainty

The European Central Bank (ECB) has initiated a series of interest rate cuts after successfully controlling inflation, which peaked at 10.6% in 2022. Following 10 consecutive rate hikes that raised the benchmark deposit rate to 4%, the ECB began reducing rates in June 2023, ultimately lowering it to 3% by December. Recent minutes from the December policy meeting reveal a divide among policymakers regarding the pace and aggressiveness of future cuts, with some advocating for a larger reduction to support a faltering eurozone economy. Despite easing inflation, which recently accelerated to 2.4%, concerns remain about potential stagnation, prompting a cautious approach to monetary policy adjustments. ECB Council members have indicated that rates may need to be calibrated carefully to avoid hindering economic growth while pursuing the 2% inflation target. The balance of risks is shifting towards economic stagnation rather than inflation, making the ECB's path forward a delicate balancing act.