ECB won't "pre-commit" to rate path amid uncertainty
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More news: In her statement after the ECB policy meeting, ECB President Christine Lagarde said that given ongoing global tensions and uncertainty, the European Central Bank (ECB) said it will follow a “data-dependent” and “meeting-by-meeting” approach to determining its monetary policy trajectory and that it is not “pre-committing to a particular rate path.”
Lagarde stated: “Risks to economic growth remain tilted to the downside. An escalation in trade tensions would lower euro area growth by dampening exports and weakening the global economy. Ongoing uncertainty about global trade policies could drag investment down.
“Geopolitical tensions, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, remain a major source of uncertainty as well. Growth could be lower if the lagged effects of monetary policy tightening last longer than expected. At the same time, growth could be higher if easier financing conditions and falling inflation allow domestic consumption and investment to rebound faster. An increase in defence and infrastructure spending could also add to growth.”
Lagarde added that a general escalation in trade tensions could see the euro depreciate and import costs rise, which would put upward pressure on inflation.
When questioned by a reporter during the ECB press conference about new defence spending plans in the EU, Lagarde said that the ECB needs to understand the plan in detail, but expects “a boost to the European economy.”
ECB cuts rates as trade war and defence cloud European outlook
The news: The European Central Bank (ECB) has cut its Deposit Facility Rate 25 basis points to 2.50%, in line with expectations.
The numbers: The ECB said inflation has continued to develop broadly as forecast, and the latest projections closely align with the previous inflation outlook. The central bank sees headline inflation averaging 2.3% in 2025, 1.9% in 2026 and 2.0% in 2027.
The euro hit a fresh four-month high, up 0.5% to USD1.0844 ($1.71) on the back of the news.
The context: In its statement on the decision, the ECB said that monetary policy is becoming “meaningfully less restrictive”, as the interest rate cuts are making new borrowing less expensive for firms and households and loan growth is picking up.
The ECB said that the European economy is facing continued challenges and marked down growth projections by 0.9% for 2025 and 1.2% for 2026.
Referencing the impact of the trade war prompted by US President Donald Trump’s aggressive pursuit of tariffs, the ECB said that the downward revisions for 2025 and 2026 reflect lower exports and ongoing weakness in investment, in part originating from “high trade policy uncertainty as well as broader policy uncertainty.”
ECB President Christine Lagarde is due to speak on the decision shortly.
The sources: European Central Bank, Bloomberg, Christine Lagarde statement
