ECB cuts interest rates amid "exceptional uncertainty"
The European Central Bank (ECB) lowered interest rates again on Thursday, as widely expected. Future moves will be harder to predict, as the bank warned for "exceptional uncertainty" in the world.
Inflation in the eurozone fell below 2 percent last month, reaching the ECB's main target. In response, the European bank lowered its deposit rate from 2.25 percent to 2 percent. This rate - the interest paid to banks for parking surplus funds with the ECB - is a key tool for steering monetary policy.
Lower interest rates make borrowing cheaper and saving less attractive, a dynamic the ECB hopes will stimulate the economy amid what it described as “exceptional uncertainty,” a reference to the tariffs introduced by US president Donald Trump.
Earlier this week, Trump doubles import tariffs on steel and aluminium to 50 per cent. He also threatened to impose 50 per cent import tariffs on European goods from 9 July. That will depend on the outcome of the negotiations between the US and the EU.
Further cuts not guaranteed
This is the eighth interest rate cut by the ECB since the middle of last year. Analysts at the Bloomberg news agency expect one further interest rate cut in September, when the economic impact of US import tariffs will become clear. But that will depend on the data in the coming months, the ECB said.
"We are in a good position on the basis of the current trade path and with the 25 basis point cut that we decided, so that we can face the uncertainties that are coming our way," said ECB president Christine Lagarde on Thursday.
Those uncertainties are weighing on investments, Lagarde continued. The ECB also left growth expectations fir 2025 unchanged. But “a strong labour market, rising real incomes, robust private sector balance sheets and easier financing conditions should all help consumers and firms withstand the fallout from a volatile global environment," Lagarde said.
PHOTO © Kirill KUDRYAVTSEV / AFP
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