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 U.S. 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.
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.
The decision of the U.S. administration to impose sweeping tariffs and its threats of country-specific punitive tariffs have left equity markets reeling and sent shock waves around the globe.
The current uncertainty has also made European banks and businesses more cautious and affected business activity. Banks in the eurozone are tightening their lending standards for companies, according to the ECB's Bank Lending Survey released this month.
In a separate ECB survey on the finances of enterprises, companies reported a decreased need for bank loans, despite the recent decline in interest rates.
European Central Bank lowers interest rates by 25 basis points
European Central Bank lowers interest rates by 25 basis points
