The European Central Bank (ECB) announced yet another 0.25 percentage point interest rate cut on Thursday, bringing its key deposit facility rate down to 2.25%. This is the lowest level since mid-2023, when the rate stood as high as 4%.
The rate cut was widely anticipated by the market, with a 94% probability already priced in ahead of the decision, according to LSEG data. The ECB cited growing global trade conflicts as a major driver of increased uncertainty.
The ECB explicitly expressed concern about the economic outlook, pointing to escalating tensions in international trade. “The outlook for growth has deteriorated owing to rising trade tensions,” the bank stated. It further emphasized that “increased uncertainty is likely to reduce confidence among households and firms.”
These trade tensions mainly refer to U.S.-imposed tariffs and the subsequent retaliatory measures from other economies. Although many of these duties have been paused or eased, analysts and economists fear that the threat alone could dampen economic growth.
The ECB also noted that the disinflation process remains on track. “Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis,” the bank affirmed.
Investors will be closely watching ECB President Christine Lagarde’s post-meeting press conference later today, where further comments on trade tensions and their potential consequences for the eurozone economy are expected.
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