ECB cuts rates by 25bps amid soft inflation and trade uncertainty
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The European Central Bank has cut interest rates by 25 basis points, bringing the deposit rate to 2%, the main refinancing rate to 2.15%, and the marginal lending facility to 2.40%, effective June 11.
The decision, widely anticipated by markets, follows a drop in eurozone inflation to 1.9% in May. Some had expected the move to be delayed until July, but the ECB acted now, citing updated projections and ongoing global trade uncertainty.
In its new baseline forecasts, the ECB expects inflation to average 2% in 2025, dip to 1.6% in 2026, and return to 2% in 2027. Growth is seen at 0.9% this year, gradually increasing to 1.3% by 2027. The revisions reflect lower energy prices and a stronger euro.
The Bank also confirmed that its asset purchase programs — APP and PEPP — are being reduced at a measured pace, as reinvestments on maturing bonds have stopped.
Although trade tensions are expected to weigh on exports and corporate investment in the near term, the ECB sees medium-term support from higher public spending on defense and infrastructure, solid wage growth, and resilient household consumption.
Reaffirming its data-driven approach, the ECB said it remains ready to adjust all tools to ensure inflation stabilizes around the 2% target and to preserve smooth monetary policy transmission.
The decision, widely anticipated by markets, follows a drop in eurozone inflation to 1.9% in May. Some had expected the move to be delayed until July, but the ECB acted now, citing updated projections and ongoing global trade uncertainty.
In its new baseline forecasts, the ECB expects inflation to average 2% in 2025, dip to 1.6% in 2026, and return to 2% in 2027. Growth is seen at 0.9% this year, gradually increasing to 1.3% by 2027. The revisions reflect lower energy prices and a stronger euro.
The Bank also confirmed that its asset purchase programs — APP and PEPP — are being reduced at a measured pace, as reinvestments on maturing bonds have stopped.
Although trade tensions are expected to weigh on exports and corporate investment in the near term, the ECB sees medium-term support from higher public spending on defense and infrastructure, solid wage growth, and resilient household consumption.
Reaffirming its data-driven approach, the ECB said it remains ready to adjust all tools to ensure inflation stabilizes around the 2% target and to preserve smooth monetary policy transmission.