ECB Cuts Rates Again Amid Inflation Drop & Trade Tensions

ECB delivers eighth interest rate cut as trade tensions persist and inflation eases.

The European Central Bank lowered its key deposit rate by 25 basis points to 2.0% on Thursday, marking its eighth cut since June 2023. While the move was widely expected, policymakers refrained from offering clear guidance on future rate changes amid easing inflation and ongoing global trade uncertainty.

The ECB cited weakening inflationary pressures and persistent economic uncertainty as key factors behind the decision. Despite expectations for more cuts later this year, the central bank hinted at caution, as some investors now anticipate a pause in July and potentially one more reduction before the end of 2025.

Capital Economics’ Jack Allen-Reynolds noted that risks are tilted toward further easing. Meanwhile, the ECB revised its inflation outlook lower, projecting headline inflation to reach 2.0% in 2025 and fall to 1.6% in 2026, down from March’s estimates. Inflation is expected to return to target in 2027.

Consumer price inflation across the 20 euro-using countries eased to 1.9% in May, down from 2.2% in April, driven by falling energy prices and lower service costs. Core inflation excludes volatile components like food and fuel—also slowed, dropping to 2.3% from 2.7%, according to Eurostat data.

Meanwhile, the European Central Bank maintained its 2025 growth forecast, expecting the eurozone economy to expand by an average of 0.9%. Although first-quarter performance exceeded expectations, the ECB cautioned that growth prospects for the rest of the year remain subdued.