ECB Cuts Policy Rate: Key Highlights and Economic Outlook

In March, the European Central Bank (ECB) lowered its policy rate by 25 basis points, marking its fifth consecutive rate cut. This decision was widely anticipated by the market, reflecting the ECB's continued efforts to ease financial conditions. The deposit rate is now 2.50%, and the main refinancing rate stands at 2.65%. While the ECB acknowledged that its policy is becoming “less restrictive,” it still considers it somewhat restrictive due to its neutral rate range of 1.75% to 2.25%.

ECB's March Rate Cut: Easing Financial Conditions Amid Economic Uncertainty

Data-Dependent Approach Amid Uncertainty

The ECB emphasized its data-dependent approach, avoiding commitments to a specific rate path given rising uncertainties. The central bank also noted that the disinflation process remains on track despite these challenges.

External Risks: Fiscal Stimulus and U.S. Tariffs

Germany's significant fiscal spending plans on infrastructure and defense could boost demand, though supply-side impacts may take time to materialize. Additionally, risks from potential U.S. tariffs on European goods could weigh on EU growth, possibly prompting further rate cuts.

Investor Sentiment and Rate Outlook

Investors now expect only one or two more rate cuts in this cycle, aligning with the ECB's current outlook. The upcoming press conference will provide more clarity on the ECB’s response to fiscal policy and trade risks.

Conclusion: Nearing the End of Rate Cuts?

With policy now “less restrictive,” the ECB may be nearing the end of its rate-cutting cycle unless new shocks arise.