No Urgency from ECB Despite Weakening Eurozone Outlook

So, the ECB's first monetary policy meeting in 2025 was pretty uneventful. As expected, they cut interest rates 25 basis points to 2.75% and they continue to believe that the pickup in consumption and investment is just around the corner. But the longer we wait for this pickup in consumption and investment, the less and less likely it seems to materialize.

And yet, despite the fact that we're seeing this weaker than expected macroeconomic outlook within the euro area, and that the ECB themselves believe that even with this latest cut in interest rates that monetary policy still remains restrictive, we got no sense from their January policy meeting of any degree of urgency in terms of bringing interest rates down more quickly.

Indeed, President Lagarde said at the press conference that the governing council didn't even have a discussion around cutting interest rates by 50 basis points in January. So, we are leaving our call intact. We continue to expect three more 25 basis points, cuts over the next couple of policy meetings, taking interest rates down to 2% by June and holding them there for the remainder of the year.

That said, when we get to March, the ECB will be updating their macroeconomic outlook. And if this retrenchment in the consumer and in firms across the euro area continues, we could see a reassessment of that narrative, that does then point to the need for more aggressive reductions in interest rates to more stimulative territory for the ECB. But we're just not quite there yet, and so we're leaving our rates picture unchanged for now.