ECB’s December 11–12 meeting minutes noted that while the 25 bps rate cut decided at the meeting was widely supported, some members argued for a more aggressive 50 bps reduction.

Some policymakers contended that a larger rate cut would have better addressed Eurozone’s weakening economic projections, with one noting that “successive projection exercises have shown increasing downside risks to growth.”

However, the majority concurred that a smaller, measured cut aligned with the “controlled pace of easing” and provided a “sense of the direction” of the path of interest rates.

The minutes emphasize while projections were conditional on a further rate cut in January, the meeting underscored that “data dependency precluded any foregone conclusions.”

The minutes also stated that the “measured pace of interest rate cuts” was essential to ensure that ECB could “pass critical checkpoints to verify disinflation remains on track.” Furthermore, it was highlighted that optionality must be preserved to address risks that could derail inflation stabilization, including geopolitical tensions, global trade disruptions, and energy price volatility.

Nevertheless, “if the baseline projection for inflation is confirmed over the next few months and quarters,” the minutes noted, a “gradual dialing back of policy restrictiveness” would be appropriate.

Full ECB meeting accounts here.

ECB Vice President Luis de Guindos highlighted today that disinflation in the Eurozone is “well on track,” reinforcing optimism about the region’s progress toward price stability. While December’s inflation rose to 2.4%, Guindos noted that this increase was anticipated and aligned with ECB’s projections. Domestic inflation remains elevated, but recent easing signals have provided some relief.

Guindos cautioned, however, that risks remain high. “The high level of uncertainty calls for prudence,” he said, referencing global trade frictions that could fragment the global economy further. He also warned about the fiscal policy challenges to weigh on borrowing costs and renewed geopolitical tensions to destabilize energy markets.

Despite weak near-term economic outlook, Guindos expressed cautious optimism, stating, “The conditions are in place for growth to strengthen over the projection horizon, although less than was forecast in previous rounds.”

Meanwhile, French ECB Governing Council member François Villeroy de Galhau echoed a positive sentiment, emphasizing progress against inflation.

“We have practically won the battle against inflation,” he said, projecting that it “makes sense for interest rates to reach 2% by the summer.” However, Villeroy also highlighted risks to France’s 2025 growth forecast of 0.9%, acknowledging that while downside risks persist, a recession remains unlikely.

ECB Chief Economist Philip Lane noted during an event today that services inflation will “come down quite a bit” in the coming months. He attributed much of the anticipated moderation to a slowdown in wage growth. Additionally, firms are reportedly experiencing reduced cost pressures, which should also contribute to easing price increases.

Lane highlighted the challenges of providing a definitive future path for interest rates, citing significant uncertainties in the global economic environment, including escalating trade tensions.

“From our point of view, saying here’s where we think the future rate path is going to be conveys a sense of certainty that we don’t feel,” Lane said, reinforcing the ECB’s cautious stance.

On the topic of exchange rates and their influence on prices, Lane pointed out that while movements in the euro-dollar exchange rate can impact European prices over time, the short-term relationship is less predictable. He noted that in the early stages of a significant currency shift, much of the impact is “absorbed by firms.

“The exchange rate, I think, over time plays a role,” Lane said. “But in terms of the month-by-month, quarter-by-quarter correlation between the exchange rate and import prices is not that stable.”