ECB cuts rates to 2% as trade tensions weigh on Europe
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The news: The European Central Bank has cut its benchmark interest rate for the eight consecutive time in the past year as inflation slips under 2% and the economy takes hits from US tariff uncertainty.
The numbers: The ECB cut rates by one quarter-point to 2%, in line with expectations.
The ECB said that headline inflation is set to average 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027, downward revisions on the March projections by 0.3 percentage points for 2025 and 2026.
Ratemakers anticipate that inflation excluding energy and food to average 2.4% in 2025 and 1.9% in 2026 and 2027, broadly unchanged since March.
The context: In the eighth consecutive cut, the ECB has now halved borrowing costs from a peak of 4% in June 2024.
The central bank said the bloc is expecting to see real GDP growth averaging 0.9% in 2025, 1.1% in 2026 and 1.3% in 2027, with the unrevised growth forecasts for 2025 reflecting a stronger than expected first quarter combined with weaker prospect for the rest of the year.
“While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term,” the ECB said.
Markets held steady on the news, with the euro unchanged against the dollar at USD1.142. Traders are continuing to price in one additional interest rate cut in the second half of 2025.
The sources: European Central Bank, Bloomberg , FT
