European Central Bank cuts interest rates by a quarter point in fourth trim of the year

This was CNBC's live blog covering the European Central Bank's December 2024 meeting.

The European Central Bank on Thursday announced its fourth interest rate cut of 2024, confirming expectations for a quarter-percentage-point move and lowering its inflation forecast for this and next year.

It takes the deposit facility — the ECB's key rate — to 3%. The deposit facility had been held at 4% since Sept. 2023, prior to the first cut of the current easing cycle in June 2024.

"The disinflation process is well on track," the central bank said in a statement on Thursday.

The ECB also removed its repeated message that it needs to "keep policy rates sufficiently restrictive for as long as necessary," which was being closely-watched by traders as a sign of a dovish tilt.

Quarterly staff macroeconomic projections meanwhile lowered the ECB's inflation forecast for 2024 to 2.4% from 2.5%. The inflation outlook for 2025 was also taken down to 2.1% from 2.2%.

The institution now sees weaker growth this and next year. Staff projections put the euro zone economy growing at 0.7% in 2024, from a prior forecast of 0.8%. Growth in 2025 is seen at 1.1%, down from a previous projection of 1.3%.

Risks to economic growth "remain tilted to the downside," ECB President Christine Lagarde said in a press conference Thursday, citing the potential for "greater friction in global trade" and lower consumer and business confidence. Europe is grappling with the potential for sweeping tariffs proposed by U.S. President-elect Donald Trump, which economists say has introduced high uncertainty into 2025 outlooks.

50-basis-point rate cut was discussed

Expectations had faded that a larger 50-basis-point trim could be in store, even after headline inflation settled near the ECB's 2% target, as growth indicators showed continued signs of deterioration in the euro zone's big manufacturing economies, including in Germany.

Money markets instead priced in a fourth 25 basis point cut, amid concerns over the recent uptick in negotiated wage growth and persistence in service sector inflation.

Lagarde nonetheless said during her press conference that some members of the Governing Council had proposed a 50-basis-point cut, and that this had been discussed.

"The overall agreement to which everybody rallied was that 25 basis points was the right decision," she told CNBC's Annette Weisbach. Key factors influencing that decision were that inflation projections have converged toward 2% for six projections in a row; wage pressures have decreased; but that victory is not yet fully achieved over inflation.

"We still have service inflation that is running high... we would really want to see a change in the composition of inflation to feel totally confident that we are really almost at target," Lagarde said.

Economists say ECB announcement shows rate cuts ahead — but no hint on neutral rate

The European Central Bank's messaging on Thursday shows a clear commitment to follow-up interest rate cuts, but leaves uncertainty over where the institution sees the so-called "neutral rate" when monetary policy is neither restricting nor boosting growth, according to economists.

"The ECB continued to describe current financing conditions as tight but dropped the reference to needing to keep policy sufficiently restrictive for as long as necessary," Mark Wall, chief European economist at Deutsche Bank, said in emailed comments.

"This combination signals an easing bias. For a market that has been pricing the chances of a sub-neutral terminal rate in 2025 today's ECB decision will feel like an endorsement."

The terminal rate is the point at which the ECB will end its current round of rate cuts.

"In our view, a combination of fading medium-term inflation pressures and lacklustre growth points to the ECB continuing to cut rates at every meeting through to June, taking the deposit rate to 2%," Dean Turner, chief euro zone and U.K. economist at UBS Global Wealth Management, said following the announcement.

Money markets have further priced a fall in rates to 1.75% in September 2025.

ECB policymakers have appeared divided in recent commentary about where they see the neutral rate, but some economists place the central bank's overall view as between 2% and 2.5%. Lagarde told reporters on Thursday the neutral rate was not discussed at the December meeting.

— Jenni Reid

Trade restrictions probably net inflationary in the short-term: Lagarde

Sweeping import tariffs proposed by U.S. President-elect Donald Trump are likely to be net inflationary for the euro zone, but the situation remains uncertain, Lagarde told reporters during the post-decision press conference.

"I continue to think that restrictions on trade, protectionist measures, are not conducive to growth and ultimately have an impact on inflation that is largely uncertain," Lagarde said.

"In the short-term, it's probably net inflationary — probable — but the overall impact on inflation is uncertain, because it's going to depend on the scope of the measures, on the retaliation that is decided, on the re-routing of trade traffic from other parts of the world, and that is a very complex situation with moveable parts."

— Jenni Reid

Weak PMIs could push ECB into bigger rate cut at next meeting, economist says

"Very pronounced weakness" in upcoming euro zone Purchasing Managers' Index' figures and weak December inflation could tilt the balance toward a bigger half-percentage-point interest rate cut in January, Jens Eisenschmidt, chief European economist at Morgan Stanley, told CNBC's Silvia Amaro following the latest decision.

"I think a reason why they didn't [cut by 0.5 percentage points] today was because there is this uncertainty how close to neutral you are really, and you don't really want to front load that discussion. This is going to be an ongoing discussion between council members over the next month," Eisenschmidt said. Neutral rates refer to the point at which monetary policy is neither restrictive nor accommodative.

"Very pronounced weakness [in PMIs and inflation] may tilt the balance," he said.

Recent messaging by policymakers suggests the ECB sees neutral as a deposit rate of 2 to 2.5%, down from the current 3%, confirming further cuts are ahead, Eisenschmidt added.

ECB President Christine Lagarde said during her press conference that the central bank was not precommiting to any rate path.

— Jenni Reid

ECB lowers inflation forecast, downgrades growth outlook

Quarterly staff macroeconomic projections, one of the most highly-anticipated announcements of the December, showed the ECB now expects lower inflation and weaker growth this and next year.

The inflation forecast for 2024 was trimmed to 2.4% from the September meeting's projection of 2.5%, while the 2025 outlook was lowered to 2.1% from 2.2%, previously. The 2026 forecast was maintained at  1.9%, and the first outlook for 2027 was introduced, pegging inflation at 2.1% during the year.

The institution now sees the euro zone economy growing at 0.7% in 2024, from a prior forecast of 0.8%. Growth in 2025 is seen at 1.1%, down from a previous projection of 1.3%.

— Jenni Reid

European Central Bank cuts interest rates by quarter point

The European Central Bank confirmed expectations of a quarter-point interest rate cut at its December meeting, taking its key rate to 3%.

— Jenni Reid

Euro zone bond yields higher

Germany's 10-year bond yield, seen as the euro zone benchmark, was two basis points higher at 2.153% at 12:15 p.m. in London, an hour ahead of the European Central Bank's decision. The French 10-year was near-flat, while Italy's 10-year yield was four basis points higher.

Spreads between euro zone bond yields have been in focus in recent months amid political instability in France and Germany.

As of early Thursday afternoon, money markets had fully priced-in a 25 basis point rate cut, and suggested expectations for the ECB's deposit facility to fall from the current 3.25% to 1.85% in June and 1.75% by September 2025.

"If the [ECB's] communication turns more dovish, then markets may going forward be even keener to price in a lower landing zone on the back of weaker economic data," ING strategists Benjamin Schroeder and Padhraic Garvey said in a Thursday note.

"With a terminal rate pricing of 1.75% the market is already geared towards the central bank taking interest rates into accommodative territory next year," they said, referring to the interest rate level at which the ECB views monetary policy at the correct level and ends its round of cuts.

"But a dovish stance this meeting would probably allow the market to further undershoot this level if the outlook were to worsen, sensing that the ECB could be even more inclined to supporting growth," they continued. 

— Jenni Reid

Big question for ECB rate cuts in 2025 is Trump policy

The European Central Bank's trajectory for rate cuts in 2025 will depend on the impact of U.S. President-elect Donald Trump's policies on the global economy and on euro zone growth, Stefan Gerlach, chief economist at EFG Bank, told CNBC's "Squawk Signs Europe."

"Suppose that we see trade barriers that threaten to slow the European economy further. Then I can well imagine that the ECB will decide to cut interest rate a little bit more rapidly, a little bit more often," Gerlach said.

"The big question, I think for all of us, is, what will the Trump administration do with economic policy? Will it carry out all the bold policy moves that President-elect Trump has mentioned during the campaign, or will some of them not be introduced, or will they be scaled back? I think no one really knows," he added.

Trump has previously threatened universal tariffs on imports to the U.S., floating higher tariffs on countries including China and Mexico and sparking concerns about retaliation and a global trade war slowing growth. The euro zone is seen as particularly highly vulnerable. Anticipated deregulation and tax cuts have also been flagged by economists as potentially drawing investment away from Europe.

— Jenni Reid

Euro higher ahead of interest rate decision

The euro was slightly higher against major currencies at 9:45 a.m. London time (4:45 a.m. ET), ahead of the European Central Bank's announcement at 1:15 p.m.

The euro was up 0.17% against the U.S. dollar at $1.051, and 0.1% higher against the British pound. It jumped 0.52% against the Swiss franc, which showed broader weakness after the Swiss National Bank cut interest rates by 50 basis points.

The euro has nonetheless tumbled against the U.S. dollar in the year-to-date, dropping from $1.104 amid expectations of fewer Federal Reserve rate cuts in 2025 and weak economic forecasts for the euro zone.

— Jenni Reid

European bourses start the day higher ahead of ECB's rate decision

Major European bourses started the trading day in positive territory, as investors awaited the European Central Bank's interest rate decision.

France's CAC 40 index was around 0.15% higher at 8:54 a.m. London time, while Germany's DAX added 0.16% and the Italian FTSE MIB rose by 0.54%.

The pan-European Stoxx 600, which also includes companies from countries that are not governed by the ECB, such as the U.K., had a muted start to the day and was last 0.09% higher.

— Sophie Kiderlin

Swiss National Bank takes leap with 50-basis-point interest rate cut amid franc strength

The Swiss National Bank on Thursday cut its key interest rate by 50 basis points, exceeding expectations of a smaller trim amid an ongoing tussle with depressed inflation and a strong Swiss franc.

The cut takes the bank's main rate to 0.5%. More than 85% of economists polled by Reuters had forecast the bank would implement a 25-basis-point cut.

Read the full story here.

— Ruxandra Iordache

A downward revision of the inflation forecast could 'lay the path for an accelerated easing cycle,' ING says

Revisions to the European Central Bank's inflation projections could create the opportunity for a faster paced rate cutting cycle, Chris Turner, global head of markets at ING, said in a note Thursday.

"We think there could be some downward revision to growth and perhaps even inflation forecasts today," he said, noting that the focus would be on whether the ECB reduces its inflation forecasts.

In its previous projections in September, the central bank forecast headline inflation would come in at 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.

"Dropping the 2025 forecast closer to 2.0% could potentially lay the path for an accelerated easing cycle," Turner said.

— Sophie Kiderlin

ECB set to poise Europe for growth in 2025 with cut and move signals, Goldman Sachs says

The European Central Bank is set to cut rates by 25 basis points on Thursday and signal further reductions to come, teeing up Europe for stronger economic growth in 2025, according to Goldman Sachs.

"We do think the ECB will go gradually ... but I do think there's going to be some acknowledgement today that rates are headed into a lower direction," Chief European Economist Jari Stehn told CNBC ahead of the decision.

"Lower rates will help somewhat with savings and boosting consumer spending, and that is one reason why we do think Europe will grow next year," he added.

ECB grappling with sticky services and core inflation

Headline inflation in the euro area may have cooled near to the European Central Bank's 2% target in recent months, but core inflation — excluding the effects of energy, food, alcohol and tobacco — has held at 2.7% for three straight months.

Services inflation has meanwhile held stubbornly near 4% through the latter half of this year, as negotiated wage growth — another concern for the inflationary outlook — rose to 5.42% in the third quarter from 3.54% in the prior period.

In its most recent forecast in September, ECB staff macroeconomic projections put average euro area inflation at 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. Those forecasts were unchanged from June.

— Jenni Reid

Economists expect 'lively debate' resulting in a 25-basis-point cut

The European Central Bank will debate whether to cut by 25 or 50 basis points on Thursday, but will ultimately settle on the smaller move, several economists told CNBC.

A key point of discussion is likely to relate to how low interest rates need to go to become "neutral" — the point at which monetary policy is neither stimulating nor restricting economic growth.

Last month, influential policymaker Isabel Schnabel told Bloomberg that rates were getting "closer to neutral territory," which she estimated at 2% to 3%, and cautioned against going too far below that.

However, more dovish members such as French central bank Governor Francois Villeroy de Galhau have continued to say that any size of a cut should be an option in December, and that moving rates below neutral — into accommodative territory — could be needed if growth remains subdued and inflation falls below target.

"This is the ECB, so they always move very slowly... part of the problem is the ECB council is very divided," Fabio Balboni, senior European economist at HSBC, previously told CNBC's "Squawk Box Europe," forecasting "very lively debate" at the December meeting and a 25-basis-point decision.

Weak economic data points including German retail sales will all be under consideration, along with disagreement over whether the fight against inflation is "not quite done," Balboni said.

Bank of America Global Research strategists said in a note on Tuesday that the ECB was likely to cut by 25 basis points at every meeting, including in December, until September 2025.

"With an economy that will be growing at or below trend for most of 2025, we think it will be hard for the ECB to skip a meeting until the [deposit facility] falls slightly below where it sees the neutral rate (2%), to where we see it (1.5%)," they said.

— Jenni Reid