BERLIN – Eurozone rate-setters are set to cut borrowing costs again this week. 

They are confident that their efforts to lower inflation will remain on track despite the threat from United States president Donald Trump’s protectionist agenda.

The European Central Bank is expected to cut its benchmark deposit rate by a further quarter point to 2.75% on Thursday, its fourth reduction in a row.

The central bank for the 20 countries that use the euro hiked interest rates repeatedly from mid-2022 to tame soaring inflation. 

However, it is now bringing them back down as price rises slowly and the eurozone economy looks weak.

There were some concerns after inflation ticked up again – it rose to 2.4% in December.

This is after having fallen below the ECB’s 2% target several months earlier.

Despite the somewhat bumpy path towards their goal, ECB officials remain convinced they are on the right path.

“We are confident of seeing inflation at target in the course” of this year, president Christine Lagarde said last week in an interview with CNBC at the World Economic Forum in Davos.

The ECB’s decision will come a day after the Federal Reserve issues its latest call, with markets expecting the United States central bank to hold rates steady, while also watching for its views on the outlook under Trump.

ING bank analyst Carsten Brzeski said a reduction in borrowing costs at the ECB’s meeting Thursday “looks like a no-brainer”, and officials appeared to be “looking through this temporary acceleration of inflation”.

Policymakers’ focus has shifted in recent times to the fading economic fortunes of the eurozone, as higher borrowing costs increasingly weigh on households and businesses.

At its last meeting in December, the ECB trimmed its eurozone growth forecast for 2024 to just 0.7%, and also cut its estimates for the following two years.

Germany, the eurozone’s biggest economy, has been a particular drag on the broader currency bloc, with its output shrinking in 2024 for the second straight year.

Rate-setters also have to navigate instability in Germany, which is heading for snap elections next month after Chancellor Olaf Scholz’s coalition collapsed, and France, where a new government took office in December following the ouster of its predecessor.

Adding to the uncertain outlook is the return to the White House of Trump, who has threatened sweeping tariffs on all imports into the United States, including from the European Union. – Nampa/AFP