The European Central Bank (ECB) on Thursday announced a 25 basis point interest rate cut, bringing the deposit facility rate to 2%, from a high of 4% in mid-2023.
Ahead of the announcement, traders had been almost certain to expect the move, with LSEG data showing a near 99% chance of a quarter-point cut.
“Specifically, the decision to cut the deposit facility rate, the key rate used by the Governing Council in steering monetary policy, is based on the latest assessment of inflation projections, core inflation dynamics and the strength of monetary policy transmission,” the ECB said in a statement.
Eurozone inflation fell below the ECB’s 2% target in May, registering 1.9% lower than expected based on preliminary data published earlier this week.
However, economic growth remains sluggish despite the start of interest rate easing. The latest estimate shows the eurozone expanding by 0.3% in the first quarter of 2025.
The ECB's decision comes at a critical time for the eurozone economy, as businesses and policymakers grapple with rising uncertainty amid global geopolitical tensions.
US President Donald Trump's tariff policies are a major concern, with the duties expected to significantly depress economic growth. Some sector-specific tariffs are expected to have a major impact on Europe, particularly in industries such as steel and automotive.
The impact of the tariffs on inflation is still unclear and depends on how the European Union responds. EU retaliation is currently on hold, but the bloc's leaders have said they are ready to implement them if necessary. Also at issue is how plans to increase defence spending across Europe will affect the regional economy.
