Candriam: On the way to 2%

Candriam: On the way to 2%

January 30, 2025

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By Nicolas Forest, CIO of Candriam

Today’s decision by the European Central Bank (ECB) to cut interest rates to 2.75% was widely expected as economic activity in Europe is stagnant and consumer confidence still depressed.

“Inflation declining towards the 2% target, the continued slowdown in wage growth and the renewed tightening in financial conditions for corporate loans and mortgages, should support the ECB stance to continue to ease monetary policy gradually over the next months.

However, the ECB remains stuck to its data-dependent meeting-by-meeting approach, with no further guidance on further cuts and no changes to its policy stance.

Uncertainty is too high for the central bank to give a pre-commitment on its rate path with potential Trump tariffs. US tariffs and any subsequent retaliation would weigh on European growth and would be a risk for the disinflation trend. The Bank of Canada has the same concern. It cut interest rates yesterday but stopped guidance on further rate path as the impact of US tariffs on the country’s economic outlook is uncertain.

The next ECB meeting in March should be more important and more data will be available, including quarterly projections.

With the cost of credit still high and weak prospects for the economy in Europe, we still expect three rate cuts by the ECB this year, resulting in a terminal rate of 2%, in line with market pricing. We think that the ECB should remain focused on growth rather than the residual risk of inflation, contrary to the FED.”

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