However, on the whole, it was the most dovish meeting of the current cycle, not least because the ECB’s fresh macroeconomic projections forecasted lower rates of inflation and economic growth both this year and next. Economists also jumped on the removal of the ECB’s message that the central bank must “keep policy rates sufficiently restrictive for as long as necessary.” Lagarde stressed that there were downside risks to the already-weak euro zone growth outlook, but said the inflation picture had significantly improved and included upside risks. She also said that a larger, half-point cut had been debated, and that Governing Council (GC) members unanimously voted to reduce rates. The new ECB staff forecast, meanwhile, put average headline inflation just above target at 2.1% in 2025, with stronger price rises expected at the start of the year suggesting it could fall below target later in the year. The dovish shift was emphasized Friday when Austrian central bank chief Robert Holzmann — widely perceived as the ECB’s arch-hawk and the only Governing Council member to vote for a rate hold rather than a cut in June — told reporters there would be no danger in cutting rates next year if the economy progresses as expected, according to Reuters. Where is neutral? Holzmann also said markets had a “similar assessment to the central bank’s” that interest rates will fall toward a neutral level — when monetary policy is balanced between boosting and restricting growth — of around 2% next year. The ECB cut the deposit facility — its key rate — to 3% on Thursday. What constitutes the neutral rate has been a key point of debate in recent months, and Lagarde said Thursday that while it had not been discussed at the December meeting, staff saw it between 1.75% and 2.5%. A further question for market participants is whether the ECB will take rates below this neutral level if inflation cools even further and the growth outlook deteriorates, as has been floated by France’s central bank governor, Francois Villeroy de Galhau.