ECB Cuts Interest Rates By 25 Basis Points As Economy Cools, Lagarde Rejects Bitcoin As Reserve Asset

The European Central Bank lowered its key interest rates by 25 basis points on Thursday, bringing the deposit facility rate to 2.75%, as the disinflation process remains “well on track” while the economy showed an unexpected stagnation during the last quarter of the year.

With the ECB's latest rate cut, the interest rate gap between the U.S. and the eurozone has widened now to 175 basis points, as the Federal Reserve opted to hold its benchmark rate steady at a 4.50% upper bound on Wednesday.

Economy Remains Weak, Lagarde Points To Further Easing Ahead

The eurozone economy stagnated in the fourth quarter 2024, according to Eurostat's preliminary flash estimate, and is expected to remain sluggish in the near term.

Financing conditions remain tight as the effects of past rate hikes continue to filter through the economy, with some loans still being rolled over at higher rates.

“We are currently restrictive. We are not at neutral rate,” said ECB president Christine Lagarde.

She highlighted a fragile consumer confidence and muted household spending, despite rising real incomes.

"The direction of travel [for interest rates] is clear," Lagarde stated, "We are confident that inflation will reach the 2% in 2025," Lagarde added.

While opening the door to further policy easing ahead, the ECB emphasized a data-dependent, meeting-by-meeting approach, avoiding any pre-commitment to a specific rate path.

Lagarde Slams The Door To Bitcoin Reserves

Lagarde firmly dismissed the possibility of Bitcoin BTC/USD entering ECB’s reserve balance, stressing the need for liquid, secure and safe assets free from concerns over money laundering and criminal activities.

“I am confident that Bitcoin will not enter the reserves of any central bank within the General Council,” Lagarde said.

“Reserves should not be plagued by the suspicion of money laundering or other criminal activities,” she added.

This stance represents a stark departure from Federal Reserve chair Jerome Powell, who just a day earlier displayed a more open attitude toward Bitcoin's potential role in financial markets. Powell acknowledged growing institutional interest in digital assets and did not rule out their evolving role in the global financial system.

“Banks are perfectly able to serve crypto customers as long as they understand and can manage the risks,” Powell said on Wednesday, while urging Congress to adopt a comprehensive regulatory clarity around crypto assets.

Market Reactions

The euro-dollar exchange rate remained broadly steady around 1.0420 following Lagarde's remarks, showing little movement on the day.

In U.S. markets, equities opened higher, with the S&P 500 and Nasdaq 100 gaining 0.4%. Small caps outperformed, as the iShares Russell 2000 ETF IWM surged 1.3%, signaling increased risk appetite among investors.

Meanwhile, gold prices, tracked by the SPDR Gold Trust GLD, soared to record highs reflecting continued demand for safe-haven assets.

In the crypto space, Bitcoin BTC/USD held on to its session gains, trading 1.3% higher at $105,000, largely unaffected by the ECB's decision.

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Photo of Christine Lagarde from Shutterstock