The European Central Bank (ECB) gave up a half-point interest rate cut at once in December so as not to give a view of the economy “worse than it really is.” The minutes of the last meeting of the Governing Council of the monetary institution, in which the fourth reduction in the official ‘price’ of money was decided by 0.25 points, to 3%, record that some governors requested a larger cut.
“Some members of the [Consejo de Gobierno] noted that a 0.5 point cut in interest rates at the current meeting was justified [la de diciembre] and they would have favored further study of the possibility of a broader decline,” the ECB minutes state. published this Thursday.
“These members highlighted the deterioration of the eurozone’s economic prospects over successive projection exercises and stressed that the risks to growth – amid many global and national political uncertainties – are to the downside,” this document continues. .
The Governing Council is made up of the governors of the central banks of each of the euro partners and the members of the executive committee, chaired by Christine Lagarde, in which Luis de Guindos is vice president and in which the chief economist and other members, such as the German and main reference of the ‘hawks’ (the most orthodox), Isabel Schnabel.
“A broader cut in interest rates would provide insurance against downside risks to growth,” some members of this Governing Council stressed in December, according to the same minutes. “Furthermore, if the economy does not recover, the risk of inflation falling short of the target would increase.” [teóricamente el 2%]which would suggest that monetary policy could become too restrictive, with interest rates still some distance from a neutral level,” these voices continue, although the document does not reveal who exactly they are from.
A new cut at the end of January
The minutes of the last ECB meeting also include that in the current context of stagnation of economic activity in the eurozone – with the positive exception of Spain – the December debate “implied a new cut in interest rates in January [la próxima decisión es el día 31 de este mes]”.
Just four days after the last cut in official rates, on Monday, December 16, in a speech in Lithuania, ECB President Lagarde recalled that the roadmap is to “continue lowering interest rates.”
As knowledgeable sources have confirmed to elDiario.es, for the year that now begins, in the organization’s calendar there are four more cuts in the official price of money of a quarter of a point each in the coming months, leaving them at 2%. .
What is not certain is whether this is the floor for this cycle of easing financing conditions after the strong increases approved to contain the inflationary bleeding caused by the invasion of Ukraine. There are doubts about whether that ground will be lower. And that is where the debate about “the neutral interest rate” comes in, the philosopher’s stone of monetary policy, as explained in this report.
In this way, the ECB continues to improve the “official” financing conditions, which are automatically transferred to the Euribor, and therefore represent a reduction in the cost of mortgages and loans in general, breathing oxygen into economic activity. That is, the institution continues to reverse the monetary austerity that it began to implement in 2022 to, precisely, suffocate demand and thus fight inflation.
The cycle of interest rate hikes began at -0.5% for the reference rate and reached 4% in the fall of 2023, where it remained until the ECB began to back down before the summer of this 2024, given the evidence that price increases had moderated after the shocks of the energy crisis and the bottlenecks in world trade due to the end of the pandemic.
Since then, the concern of the institution’s Governing Council has shifted from inflation, its main mandate, to the stagnation of the economy of the eurozone as a whole, mainly due to the slowdown of the two main EU economies.
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