Source: Sharecast
The Eurozone's central bank trimmed its key deposit facility rate by 25 basis points to 2%, the eighth reduction in the current cutting cycle.
It said the decision was based on an “updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission”.
The ECB now expects inflation to average 2.0% this year and 1.6% in 2026, both 0.3 percentage points lower than its last forecasts. The bank attributed the downward revision to lower assumptions for energy prices and a stronger euro.
Data earlier this week showed that inflation had dipped to 1.9% in the Eurozone in May, down on April’s print of 2.2% and below the bank’s medium-term target of 2%.
In contrast, economic growth across the bloc remains sluggish.
The ECB left its economic forecasts unchanged. It expects real GDP growth to average 0.9% this year and 1.1% in 2026.
“While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term,” it noted
“Higher real incomes and a robust labour market will allow households to spend more. Together with more favourable financing conditions, this should make the economy more resilient to global shocks.”
One or two further cuts to interests are widely expected this year, although the market is split as to when they will be announced.
Speaking at the press conference afterwards, however, president Christine Lagarde refused to be drawn on the direction of travel for rates, other than to reiterate that the ECB was "well-positioned to navigate" the current global economic uncertainty. "We will constantly asses and reassess how we deliver on this 2% [inflation] target," she added.
Lagarde also dismissed reports that she had been planning to leave before the end of her term in 2027, to take up her next role as chair of the World Economic Forum. "I am determined to complete my term," she told reporters. "So I regret to tell you that you're not about to see the back of me."
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “The ECB has been concerned about sluggish growth, as uncertainty rains down about US trade policy. But it’s looking highly likely that there will be a summer pause so that policymakers can assess the waters ahead.
“With the deposit rate now at 2%, it is considered to be in neutral gear, neither restraining nor stimulating demand in the economy. This expected wait and see stance is hardly surprising, given that it’s still unclear how heavily tariffs will weigh on the Eurozone economy ahead.”
Carsten Brzeski, global head of macro at ING, said: “Rapidly fading inflationary pressures have given the ECB ample room to bring interest rates into neutral territory. With the risk of inflation undershooting currently increasing, today’s rate cut will not be the last.”