Eurozone policymakers cut interest rates last month to avoid an undue tightening of monetary policy amid heightened global uncertainty, according to minutes of the European Central Bank’s (ECB) June 3-5 meeting released on Thursday.
The ECB cut interest rates for the eighth time in a year, but signaled it would temporarily pause any further easing as inflation has now returned to target and U.S. trade policy uncertainty remains too high.
“Members stressed that the global economic outlook remains highly uncertain,” the minutes said, and that “elevated trade uncertainty is expected to persist for some time and may broaden and intensify.”
A delay in the ECB’s rate-cutting cycle is now increasingly certain, as a majority of policymakers agree that key data and clarity on U.S. trade talks will not be available by the July 24 meeting.
Markets are also expecting the same. Investors are eyeing just one more cut in the ECB’s deposit rate to 2%, expected later this year, before rates are expected to start rising again in late 2026.
“Indicators for April and May have already shown signs of a slowdown” in the global economy, the ECB minutes added.
While most policymakers believe the ECB has successfully achieved its inflation target, some, including Finland’s Olli Rehn, Portugal’s Mario Centeno and Belgium’s Pierre Wunsch, have warned that too-low inflation could also pose risks and require more policy support.
In fact, projections show price growth will fall below the ECB’s target this year and remain below 2% for 18 months, weighed down by a strong euro, low energy costs and cheap imports from China before returning to target.
Last month’s rate cut was aimed at “ensuring that the temporary fall in headline inflation does not become protracted,” the minutes said.
The strength of the euro, which has risen almost 14% this year against the US dollar, was also mentioned several times in the report. Historically, the euro has typically weakened against the US dollar when market volatility increases.
But in the past three months, the euro has risen in tandem with a surge in volatility, the ECB said, “showing that the euro is currently a safe haven.”
But the ECB has also warned that a weakening euro could weigh on exports. Policymakers have stepped up their warnings this week about the economic impact of the currency’s surge.
The ECB also described the resilience of eurozone government bond markets during the turmoil in April caused by President Donald Trump’s trade war as “extraordinary.”
But some have warned that deglobalization, the green transition and the aging of the world’s population will add to price pressures in the future, potentially leading the ECB back to above-target inflation.
