ECB Updates Neutral Rate Estimate Amid Easing Discussion

The European Central Bank (ECB) is reevaluating its approach to monetary policy as it continues to lower interest rates amid signs of weakening economic growth and easing inflation pressures. Chief Economist Philip Lane emphasized the need for a balanced approach in the easing cycle, advocating for measured rate cuts that neither stifle growth nor exacerbate inflation. He highlighted that determining the appropriate level of monetary restrictiveness involves multiple factors beyond just the so-called neutral rate, which he deems less relevant as rates approach a growth-friendly threshold. Policymakers are focusing on a broader set of economic indicators to guide their decisions, maintaining flexibility and agility in their approach. Investors anticipate further rate cuts, with expectations of at least three more reductions this year as price pressures diminish. The ECB's current key rate stands at 2.75%, following a series of cuts since June 2024.