The European Central Bank made yet another 25-basis-point interest rate cut on Thursday as global tariff turmoil has created widespread uncertainty and spurred fears about the euro zone’s economic growth.
A rate cut was fully anticipated by markets, with an around 94% chance of a 25-basis-point trim being priced in ahead of the decision, according to LSEG data.
The cut takes the ECB’s deposit facility rate, its key rate, to 2.25%. At its highs in mid-2023 it had been at 4%.
Tariff developments in recent weeks are widely seen by analysts and economists as a key reason for the ECB to cut interest rates. Even though many of the initial duties imposed by the U.S., as well as retaliation measures, have been put on ice or eased, fears about how they could affect economic growth have been rife.
In its policy statement, the ECB said that the “outlook for growth has deteriorated owing to rising trade tensions.”
It added, “Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions.”
Investors will be watching out for any additional comments regarding tariffs from the central bank’s President Christine Lagarde in her post-meeting press conference.
The ECB on Thursday also said that “the disinflation process is well on track.”
“Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis.”