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Christine Lagarde, president of the European Central Bank (ECB), at the Hertie School in Berlin, Germany, on Monday, May 26, 2025.
Krisztian Bocsi/Bloomberg via Getty Images
The European Central Bank on Thursday announced a 25-basis-point interest rate trim taking the deposit facility rate to 2%, down from a mid-2023 high of 4%.
Ahead of the announcement, traders had been pricing in an almost 99% chance of the quarter-point cut according to LSEG data.
“In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission,” the ECB said in its statement.
Euro zone inflation fell below the 2% ECB target rate in May, hitting a cooler-than-expected 1.9% according to preliminary data published earlier this week.
Economic growth however has continued to be lacklustre even as interest rates have eased. The latest estimate shows that in the first quarter of 2025, the euro zone expanded by 0.3%.
The central bank’s decision comes at a critical time for the euro zone economy as businesses and policy makers face increasing uncertainty in the wake of rising geopolitical tensions.
U.S. President Donald Trump’s tariff policy is a main concern, with the duties expected to weigh heavily on economic growth. Some of the sector-specific tariffs in particular could hit Europe hard as key industries like steel and autos are impacted.
The impact of tariffs on inflation is less clear and could depend on if, and how, the European Union strikes back, policymakers have said. Retaliatory measures from the EU are currently on pause, but the bloc’s leaders have said they are prepared to implement them if needed. Question marks also remain about how plans to ramp up defense spending across Europe could impact the economy.
This is a breaking news story, please check back for updates.
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