ECB cuts key rates by 25 bps in March monetary policy decision, as expected

• Prior decision
• Deposit facility rate 2.50% vs 2.50% expected
• Prior 2.75%
• Main refinancing rate 2.65% vs 2.65% expected
• Prior 2.90%
• Marginal lending facility 2.90%
• Prior 3.15%
• Monetary policy is becoming meaningfully less restrictive
• Rate cuts are making new borrowing less expensive for firms and households
• The disinflation process is well on track
• Inflation has continued to develop broadly as staff expected
• Headline inflation seen averaging 2.3% in 2025, 1.9% in 2026 and 2.0% in 2027
• The upward revision in headline inflation for 2025 reflects stronger energy price dynamics
• Core inflation seen averaging 2.2% in 2025, 2.0% in 2026 and 1.9% in 2027
• The economy faces continued challenges
• Growth projections downgraded to 0.9% for 2025, 1.2% for 2026 and 1.3% for 2027
• That reflects lower exports and ongoing weakness in investment, in part from high trade policy uncertainty
• ECB to follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance
• ECB is not pre-committing to a particular rate path
• Full statement

There are a couple of changes to note in the statement. Right off the bat is the phrasing of the current monetary policy stance. Previously, the ECB said that “monetary policy remains restrictive” but now they are saying that “monetary policy is becoming meaningfully less restrictive”.

It’s not a major change and you wouldn’t expect them to outright remove the phrasing of “restrictive” today in any case. They will still be cutting rates again in the months ahead and this reaffirms that positioning.

The other thing to note is that the ECB added a line in their guidance passage here. It’s a subtle one but worth taking note as it could hint at a pause in April:

“Especially in current conditions of rising uncertainty, it will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.”

It can work both ways, so the ECB is buying some insurance for that. But if need be, they can choose to pause in April as well depending on how they want to spin the narrative in the weeks ahead.

For now, we’ll have to see what Lagarde has to say and how she communicates the slight upward revisions to inflation projections and downward revisions to the growth forecasts.

This article was written by Justin Low at www.forexlive.com.