ECB Cuts Interest Rates to 2.65% – What It Means for Markets & Crypto

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The European Central Bank (ECB) announced to lower interest rates to 2.65% this Thursday, stepping down from its previous peak of 4.5%. This move is part of a global trend where central banks are loosening financial policies to support economic growth. In the U.S., traders expect at least three interest rate cuts from the Federal Reserve in 2025, while Germany and China are relying on government spending to keep their economies stable.

We cut our key interest rates by 0.25 percentage points.

We are doing this because inflation is on track to settle at around our 2% target, and the economy is facing headwinds.

Read today’s monetary policy decisions https://t.co/rbgOSXWVRF pic.twitter.com/cHr9hMD42H

— European Central Bank (@ecb) March 6, 2025

As per the press release, the ECB has lowered its key interest rates by 0.25 basis points, bringing the deposit facility rate to 2.50%, the main refinancing rate to 2.65%, and the marginal lending rate to 2.90%, effective March 12, 2025.

What This Means for Markets

Lower interest rates generally lead to increased money flow, which can boost stock markets and riskier assets like cryptocurrencies. Analysts suggest this easing cycle could push crypto prices higher, despite ongoing concerns about slowing economic growth. However, not everyone sees this as entirely positive. Inflation in Europe is still above the ECB’s target of 2%, and aggressive rate cuts could create problems in the long run.

Bond Markets in Chaos

The bond market is already reacting. Germany’s 10-year government bond yield has surged to 2.8%, its highest in more than a decade. This has narrowed the gap between German and U.S. bond yields, which in turn is putting downward pressure on the U.S. dollar. The situation is similar to what happened during Donald Trump’s first term when global financial shifts influenced currency values.

Meanwhile, the U.K. is also seeing higher bond yields, now surpassing those of the U.S. Over in Japan, the country’s 10-year bond yield has hit 1.5%, the highest level in 17 years. The Bank of Japan, which recently raised interest rates after years of keeping them low, is now struggling to control inflation.

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Uncertain Road Ahead

While the ECB’s rate cut may bring short-term relief, the overall financial situation remains unstable. If bond market volatility continues, investors may hesitate to take on risky assets like cryptocurrencies. Although crypto benefits from easier financial conditions, unexpected market shifts could still trigger uncertainty.

Max Wienke explains that while the ECB is expected to cut interest rates in March, the future remains uncertain. Inflation in the Eurozone has dropped slightly to 2.4%, supporting further cuts, but factors like Trump’s unpredictable trade policies and the Ukraine war create complications. Divisions within the ECB are growing, making it harder to predict the pace of future cuts. A key concern is that aggressive easing could fuel inflation, while slow cuts might hurt growth.