The ECB cut rates by 25bps to 2.75%, with President Christine Lagarde indicating further cuts may follow if inflation declines. Economic challenges persist, compounded by geopolitical tensions, while Lagarde ruled out Bitcoin as a reserve asset due to its volatility. Market responses remained stable, with slight gains in European equities.

On Thursday, the European Central Bank (ECB) implemented a 25 basis point cut in its key interest rates, setting the deposit rate at 2.75%. ECB President Christine Lagarde indicated that further rate reductions may occur if inflation continues to decrease, stating, “We know the direction of travel,” and emphasized that future cuts would depend on incoming economic data.

Lagarde also noted that current financing conditions are still restrictive, suggesting that more adjustments may be forthcoming. She left open the possibility of another rate cut in March, depending on the economic data received in the interim. She remains optimistic about achieving the inflation target of 2% by 2025, despite fluctuations in the short term.

The ECB’s focus on downside risks to economic growth was highlighted, with Lagarde citing geopolitical tensions and trade frictions that could slow recovery. The eurozone’s economy stagnated during the last quarter of 2024, with unexpected contractions in GDP reported for both Germany and France. Lagarde warned that these factors could dampen exports and the overall growth of the euro area.

In addressing speculation about Bitcoin as a potential reserve asset for the ECB, Lagarde firmly ruled it out, stating, “Reserves have to be liquid, secure, and safe.” She articulated concerns over Bitcoin’s volatility and associated risks such as money laundering. This statement contrasts with U.S. Federal Reserve Chair Jerome Powell’s more open stance regarding cryptocurrencies, advocating for improved regulatory frameworks.

Following the ECB’s announcements, market reactions were relatively muted. The euro remained stable at $1.0430, while European equities gained modestly, with the Euro STOXX 50 index rising by 0.7%. Buoyed by strength in real estate and banking sectors, the Spanish IBEX 35 outperformed other national indices.

The ECB’s recent decision to cut interest rates reflects ongoing challenges in the Eurozone economy, marked by stagnant growth and elevated risks from external pressures such as geopolitical events and trade tensions. As inflation remains a pivotal concern, central banks are continuously assessing data to guide their monetary policy strategies. This context is vital to understanding Lagarde’s comments regarding upcoming rate decisions and the rejection of Bitcoin as a reserve currency.

The European Central Bank’s recent policy decision to cut interest rates aligns with concerns over economic stagnation and inflation trends. President Lagarde’s commitment to a data-driven approach suggests the potential for further easing if conditions permit. Moreover, her rejection of Bitcoin as a reserve asset reinforces the ECB’s stance on financial stability amidst rising cryptocurrency discussions, contrasting with some positions taken by other central banks.

Original Source: www.euronews.com

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