European Central Bank cuts rates amid stalled growth

The European Central Bank lowered interest rates by 25 bps to 2.75% on Thursday, its fifth straight cut, as it pivots from fighting inflation to tackling sluggish growth, according to a statement. The eurozone economy has been struggling — Germany and France’s economies shrank in 4Q 2024, Italy’s flatlined, and Spain managed 0.8% growth, Reuters reports.

Analysts saw this coming: A rate cut this week “should be an easy decision,” European economist at BofA Global Research Evelyn Herrmann told Bloomberg ahead of the ECB’s rate cut, adding that “after that, things could get more interesting and possibly more controversial.” Markets are pricing in at least three more cuts this year, with a terminal rate near 2%.

The rationale: Policymakers say rising real incomes and fading monetary restrictions should boost demand, but weak exports, shrinking industry, and cautious consumers could deepen the slowdown. “Uncertainty is weighing on growth in the here and now in Europe,” PGIM’s Katharine Neiss told Bloomberg, citing trade war fears.

The ECB isn’t worried about inflation: While inflation ticked up to 2.4% in December, the ECB believes it’s “well on track” to return to target, pointing to easing wage growth and softer demand.

How far will the cuts go? At 2.75%, rates are already nearing the estimated “neutral” range of 1.75%-2.50%, meaning further easing could stimulate the economy. Policymakers are divided; Greece’s Yannis Stournaras backs a 2% rate by mid-year, but hawks like the Netherlands’ Klaas Knot warn that the ECB is nearing its limit. The central bank signaled it will take a “data-dependent and meeting-by-meeting approach.”

Trump’s tariffs add uncertainty: The ECB’s move comes after the US Fed held rates steady last week, with Chair Jerome Powell flagging uncertainty under President Donald Trump. Analysts warn that new tariffs on European exports could stall growth and force the ECB to act more aggressively, even as high services prices, rising energy costs, and weak productivity pose fresh inflation risks.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.2% yesterday on turnover of SAR 6.5 bn. The index is up 3.2% YTD.

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CORPORATE ACTIONS-

#1- Banque Saudi Fransi (BSF) is set to distribute SAR 1.25 bn in dividends for 2H 2024, it said in a disclosure to Tadawul. Owners of some 2.49 bn shares will be eligible for SAR 0.50 apiece, with dates to be announced later.

#2- Allied Cooperative Ins. Group received a six-month extension to increase its capital by SAR 209 to reach SAR 500 mn through a rights issue, following approval from the Ins. Authority, it said in a disclosure to Tadawul. The capital increase is now pending other regulatory approvals.

#3- Alkhabeer Capital is distributing SAR 14.8 mn in dividends to Alkhabeer REIT unitholders for 4Q 2024 at SAR 0.105 per unit, it said in a disclosure to Tadawul. Payments are set to be made by 10 April, within 40 business days of the eligibility date on 13 February.

#4- Emaar EC deposited returns from sale of fractional shares — resulting from capital reduction — into shareholder’s accounts, it said in a disclosure to Tadawul. The company carried out a capital reduction by 53.8% to SAR 5.23 bn, via cancelling about 0.54 shares for every one share to extinguish accumulated losses, it said in an earlier disclosure back in January.