The European Central Bank (ECB) lowered its key interest rates for the eighth consecutive time, reducing the deposit facility rate by 25 basis points to 2.0%, Reuters reported.
The decision, effective from 11 June 2025, also reduces the main refinancing rate to 2.15% and the marginal lending facility to 2.40%. The move comes as eurozone inflation has returned to the ECB’s 2% medium-term target, with preliminary May data showing a further decline to 1.9%.
ECB staff projections now anticipate average inflation of 2.0% in 2025, down from March’s 2.3% forecast, 1.6% in 2026, and 2.0% in 2027, primarily reflecting lower energy price assumptions and a stronger euro.
While acknowledging inflation control, the ECB expressed heightened concern about economic prospects amid escalating trade tensions. The central bank noted that “uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term,” referencing the impact of US President Donald Trump’s tariff threats.
This has contributed to a subdued growth forecast of 0.9% for 2025, though government investment in defence and infrastructure is expected to “increasingly support growth over the medium term.” The ECB specifically warned that “a further escalation of trade tensions over the coming months would result in growth and inflation being below the baseline projections.”
The Governing Council explicitly avoided pre-committing to future rate adjustments, stating it “will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance” amid “exceptional uncertainty.”
While some policymakers and investors anticipate a pause in cuts at July’s meeting, the ECB maintained flexibility, noting that interest rate decisions will be based on “the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.”
The statement highlighted balanced risks to inflation, with core inflation projections revised slightly upwards to 2.4% for 2025.
Financial markets responded moderately to the decision, with the pan-European Stoxx 600 holding steady with a 0.3% gain and the euro appreciating 0.2% against the dollar. Attention now shifts to ECB President Christine Lagarde’s press conference for further insights into how trade policy developments might influence the central bank’s approach in the coming months.
