Christine Logard, President of European Central Bank (ECB) at Hurti School in Berlin, Germany on May 26, 2025.
Christian Sorry/Bloomberg by Getty Images
The European Central Bank announced a 25 basis point interest rate trim on Thursday and reduced its inflation expectation of strong euro and low energy costs.
It takes the rate of deposit facility to 2%, which is 4%from the middle of 2023. Prior to the announcement, traders had about 99% of the quarter-point reduction, according to LSEG data.
“In particular, the decision to reduce the rate of deposit facility – the rate of the governing body is based on the rates of monetary policy – the renewed assessment of the inflation perspective, the underlying inflation kinetics and the strength of the monetary policy transmission,” the ECB said in a statement.
ECB President Christine Lagard said at a news conference after the announcement that a member of the governing body did not support the decision to cut rates.
Pan-European Stacks 600 Initially stable after the announcement, the profit was increased by 0.6% against the euro dollar before trading 0.2% lower.
Revised economic view
Euro sector inflation is lower than the 2% ECB target rate in May, 1.9% cooled than expected Preliminary Data published early this week.
The ECB released its latest economic projections on Thursday, saying it is now expecting inflation to be an average of 2% in 2025. It compared 2.3% with the March forecast.
“The downward revisions, from 0.3 per cent to both 2025 and 2026 compared to March projections, reflect the low UMP of fuel prices and the stronger Euro,” the central bank said.
Meanwhile, core inflation has been revised to 2.2% from the previous March estimate, 2.4% this year.
However, Logard noted that “Euro region’s inflation orientation is more uncertain than usual.”
However, the economic growth continues to be boring as interest rates are smooth. In the first quarter of the latest estimate of 2025, the Euro sector shows that the zone extended by 0.3%.
In the first quarter, the growth was “giving us momentum for the growth we are looking at and expecting for 2025,” Logard told CNBC’s Annette Wisback.
“I will not exclude that the number of 0.3 will be revised up to the top,” he said.
Nevertheless, the ECB chief said that the “far -sighted” of the central bank is confident, even though it is in a “good place” after the rate cut.
The ECB has been attached to a weak standpoint due to the first three months of stronger than expected, without changing its growth forecast by 0.9% to 2025.
“Although the uncertainty around business policies is expected to weigh on business investments and exports, especially in the short term, the increasing investment of government in defense and infrastructure will support medium -sized growth,” the ECB said.
Central Bank’s decision comes at a crucial time for the Euro Zone economy as businesses and policymakers are facing increasing uncertainty in the wake of increasing geographical political tensions.
In the President of the US Donald TrumpThe tariff policy is a major concern, as duties are expected to weigh more on economic growth. In particular, some zone-specific tariffs can severely hit Europe as it affects major industries such as steel and autos.
The impact of the tariff on inflation is less clear and depends on how the European Union tortures and policymakers have said. The leaders of the block said that the revenge actions from the EU are currently in a break, but they are ready to implement them if necessary. There are also question marks on how plans to increase defense spending across Europe affect the economy.
A way of uncertain policy ahead
The ECB has not given any indication of what may be on the horizon for interest rates on Thursday, the analysts are divided into the next path.
“Although the ECB has given a widespread expected rate cut today, we will not count on compliance next month,” Shroders’ Euro Zone economist Irene Laro said in a note. He said there was no signs that the tariffs were weakening the economy so far, so the break in the rate cut cycle was now likely.
“Now with the rates in the center of their estimated neutral range, the higher the bar has increased,” Laro said. “ECB is able to change from an emergency to patience.”
Others argued that the rates should be reduced as inflation pressures are getting easier.
“With the rapid decrease in inflation and the growth headwinds pick up the risk of ECB Undersing The aim is, ”said Natasha May, a global market analyst of JP Morgan Asset Management.
He said business tensions could have a profound effect on inflation in the medium period rather than raising prices.
“If some governing body members are advocating for a July break, the case is crystal for another rate cut,” May added.
