ECB cuts interest rates again, says they want nothing to do with Bitcoin

On Jan. 30, the European Central Bank (ECB) decided to cut its three key interest rates by 25 basis points. This brings the deposit facility rate to 2.75%, the main refinancing operations rate to 2.90%, and the marginal lending rate to 3.15%. The changes are to take effect on February 5, 2025, according to the ECB’s announcement.

Reportedly, this decision is meant to help them hit their elusive 2% inflation target. The ECB says disinflation is on track. Inflation is behaving as predicted by their staff projections and is expected to settle near 2% this year.

But for now, inflation pressures are still dragging along because wages and prices in certain sectors are taking their sweet time adjusting to earlier price surges.

The Governing Council admitted this delay, though they also said that wage growth is finally calming down and corporate profits are cushioning some inflationary heat.

If you think these rate cuts mean borrowing is suddenly cheap and easy, think again. Businesses and households are still feeling the squeeze. Yes, new loans might come with lower rates, but many existing loans are getting rolled over at higher costs due to previous hikes.

The ECB confirmed today that monetary policy remains restrictive. However, they believe that as people’s real incomes improve and the painful effects of rate hikes fade, demand will eventually pick up.

The Governing Council also made it clear that it’s not locking itself into any particular plan for future rate changes. Decisions will depend on the data they get before each meeting.

ECB President Christine Lagarde reinforced this during her post-report press conference today, saying that any rate adjustments will be based on incoming economic and financial data, along with how well the current policies are working.

The ECB’s balance sheet is getting leaner as well. The central bank is pulling back on asset purchases. Both the Asset Purchase Program (APP) and the Pandemic Emergency Purchase Program (PEPP) portfolios are being allowed to decline at a predictable rate. They are no longer reinvesting the principal payments from maturing securities under these programs.

On top of that, banks repaid the last remaining loans they had borrowed under the ECB’s targeted longer-term refinancing operations (TLTRO) on December 18, 2024. This brings that part of the ECB’s balance sheet normalization process to an official close.

The Governing Council also reminded the market of their safety net: the Transmission Protection Instrument (TPI). This tool is designed to stop any disorderly market conditions that could disrupt the flow of monetary policy across the eurozone. Basically, they’re ready to intervene if things go haywire.

Lagarde shuts down Bitcoin talks after Czech proposal

Meanwhile, after Czech National Bank Governor Ales Michl suggested adding Bitcoin to his country’s official reserves, Lagarde was quick to shut that down. “I am confident that … bitcoins won’t enter the reserves of any of the central banks of the General Council,” she said during today’s press conference.

Even though the Czech Republic doesn’t use the euro, its central bank is part of the ECB’s General Council, which advises EU member states on financial policy. Michl’s comments, made on Jan. 29, caused a stir in financial circles since central banks have historically kept their distance from cryptocurrencies.

Bitcoin, after all, was created as a rebellion against the traditional banking system. Lagarde said she spoke with Michl and that they reached an understanding. “Central bank reserves should be liquid, secure, and safe,” she added.

The Czech National Bank hasn’t completely closed the door on new ideas, though. They announced today that their board approved an analysis to explore diversifying their reserves with other asset classes. However, they made no mention of Bitcoin in that plan.

Poland’s central bank, meanwhile, flat-out rejected the notion of investing in cryptocurrencies. They dismissed it as an “asset class with very high risk.” Similarly, Romania’s central bank confirmed they have zero plans to include “digital assets” in their reserves.

Across the Atlantic, U.S. Federal Reserve Chair Jerome Powell has seemingly changed his position. On Jan. 29 during his own press conference in which he decided not to cut rates, Powell said they would support banks in providing crypto services to clients.

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