The European Central Bank cut 0.25 percentage points to 2.25% on Thursday amid uncertain economic outlook as the escalation of the looming trade war surprised investors. Movement It was widely expected.
This marks the sixth consecutive rate reduction in the eurozone deposit rate and the seventh overall reduction in the easing cycle. The ECB is the only major central bank that was cut in April. Counterparts in the US, UK, Japan, Sweden and Norway are scheduled to announce their next policy decision in early May.
“The developmental process is on track,” the ECB said in a press release. Service inflation has eased significantly in recent months, with most measures of underlying inflation suggesting that inflation will settle around the bank’s 2% target.
“The growth outlook has deteriorated.”
“The eurozone economy has increased several resilience to global shocks, but growth outlook is worsening due to rising trade tensions,” the ECB said.
“Increased uncertainty is likely to reduce trust between households and businesses, and the response of unfavourable and unstable markets to trade tensions could affect funding terms. These factors could further explore the eurozone’s economic outlook.”
With a significant rate of 2.25%, the ECB has now removed the phrase “monetary policy is significantly less restrictive” from its statement.
According to Michael Field, chief strategist of the European market at Morningstar, “While interest rate cuts were expected this year, the recent escalation of the trade war with the US has fueled the need to strengthen the economy.”
“Before April 2nd, the ECB had a very clear trajectory of future rate reductions. Deposit rates were approaching the desired level. Recent events are throwing us into unknown territory,” Field says.
“While tariffs can have the effect of undermining growth in vulnerable Europe, they can also ignite inflation across the region. This is two situations that require a completely different response from the ECB regarding changes in interest rates.”
Major ECB Interest Rates
As of April 23, the three main ECB interest rates are as follows:
Deposit facility fee: 2.25% Main refinance rate: 2.40% marginal lending facility: 2.65%
ECB Rate cut cycle started in June 2024suspended in July, September, October, December, January, and marchlowers its key rate by a total of 1.5 percentage points.
Trump tariffs threaten eurozone growth
Tariffs are widely expected to curb growth in the Euro area. The forecast for March showed that ECB staff had already cut their forecasts. Sentiment indicators such as Sentiment Index in the Sentiment Index and HCOB Eurozone Manufacturing PMI have recently collapsed, with economists expecting a impact on hard data starting in May.
Last week, UBS downgraded its eurozone growth outlook from 0.9% in 2025 to 0.8% from 1.1% in 2026. Germany’s next Union Government They agree to a multi-billion euro stimulus package, and analysts believe the country could benefit disproportionately compared to its eurozone peers.
What does tariffs mean for eurozone inflation?
Most economists agree that tariffs will undermine growth in the eurozone, but the impact on inflation is less clear.
Ulrike Kastens, senior European economist at DWS, said cheaper goods from China, lower energy prices and stronger euros are expanding against the euro. The ECB wage tracker continues to show that negotiated wage pressures are eased despite service inflation being set to rise throughout 2025, she says.
Still, according to a paper by the National Bank of Austria, tariffs could lead to supplying bottlenecks that could push prices higher.
Eurozone consumer prices rose 2.2% year-on-year in March. According to Eurostat’s Flash estimate, it was lower than the 2.3% reading in February, Following predictions.
DWS forecasts headline inflation of 2.3% for the entire year, falling to 2% in the second half of the fiscal year, in line with the ECB medium-term inflation target of 2%.
How will interest reductions affect the market?
The stock market is likely to increase with expected interest rate cuts. In the bond market, a fall in interest rates means lower yields, leading to higher bond prices. Also, lower fees are existing bonds, especially those already issued during the period of higher rates, making them attractive due to their yields.
On the other hand, the cash savings rate in a bank account is likely to undermine the savers. The fees received by a Savers are primarily dependent on the deposit facility. This defines the interest that a bank receives to deposit money with the ECB overnight. In contrast, borrowers benefit from lower fees as consumer debt and mortgages get cheaper.
When will the next ECB meeting in 2025?
June 5th, 2025 July 24th, 2025 September 11th, 2025 October 30th, 2025 December 18th, 2025
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