ECB Policymakers Back Further Easing

By Balazs Koranyi

FRANKFURT (Reuters) – European Central Bank (ECB) policymakers supported further easing on Friday, a day after the bank’s fourth consecutive rate cut, despite new surveys indicating ongoing inflation momentum.

The ECB reduced interest rates to 2.75% on Thursday, stating that borrowing costs would continue to decline as the economy stagnates and inflation is “well on track” to meet the bank’s 2% target.

A day after the unanimous decision, Olli Rehn, Finland’s central bank chief, noted rates might return to a level that neither inhibits nor stimulates economic growth. He expressed confidence that inflation would stabilize at the projected target and that monetary policy would soon transition from restrictive status, estimating this shift to occur in spring or summer.

In a speech last week in Davos, ECB President Christine Lagarde identified the neutral rate between 1.75% and 2.25%, suggesting the ECB was two cuts away from the upper limit of the range. Policymakers, quoted anonymously, indicated that another rate cut in March is likely.

Inflation Optimism

Estonian central bank chief Madis Müller echoed this positive outlook on inflation, suggesting a neutral policy stance is approaching. He believes that by mid-year, inflation in the euro area will be very close to the central bank’s 2% target.

Inflation was reported at 2.4% last month and is expected to remain near this level before hitting 2% around the middle of the year. However, lower-than-expected inflation rates in France and Germany may have encouraged investors to anticipate faster rate cuts.

Despite these encouraging comments, two ECB surveys indicated rising inflation expectations. The quarterly Survey of Professional Forecasters projected consumer price growth at 2.1% this year, up from 1.9% three months ago, with unchanged 2026 projections at 1.9%, hinting at only a minor delay in reducing inflation.

The ECB’s own forecasts foresee inflation dropping back to the 2% target just after mid-year, while for now, price growth is expected to fluctuate around December’s 2.4% figure, Lagarde noted on Thursday. Meanwhile, the ECB’s survey of 19,000 euro area consumers showed median inflation expectations for the next 12 months climbing for the third consecutive month, from 2.6% to 2.8%. However, three-year inflation expectations remained steady at 2.4%.