FRANKFURT — The European Central Bank (ECB) on Thursday decided to cut key interest rates for the seventh time since June 2024, in response to the negative impact of erratic US tariffs on economic growth across the eurozone.
Following the ECB’s adjustment, the deposit facility rate and the interest rate on the main refinancing operations will drop to 2.25 percent and 2.4 percent, respectively, while the marginal lending facility rate will be reduced to 2.65 percent.
The ECB said the disinflation process remains on track but warned of increased uncertainty fueled by escalating trade tensions, which are clouding the economic outlook.
Also on Thursday, ECB President Christine Lagarde said during a press conference that “downside risks to economic growth have increased,” as a major escalation in global trade tensions and the associated uncertainty will likely lower euro area growth by dampening exports. It may also drive down investment and consumption, she said.
It is the seventh time that the ECB has lowered key interest rates since it embarked on a cycle of rate cuts in June last year. A total of 175 basis points has been knocked off the three key interest rates, which were lifted to their highest points by September 2023.
This time, the ECB didn’t repeat its previous rhetoric that the rate cuts would go on, at a time when uncertainties were rising. Instead, it will follow “a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance,” said the Bank.
Carsten Brzeski, global head of Macro for ING Research, considers this week’s rate cut to be the right move.
“Today’s cut won’t do any harm; staying on hold would not only have cast doubt about the ECB’s willingness to bolster growth but could also lead to a further and unwarranted strengthening of the euro,” Brzeski said in a note.
