ECB cuts interest rates for seventh time

The European Central Bank (ECB) has cut interest rates for the seventh time in a row, lowering its main deposit facility rate to 2.25% from 2.5% on Thursday, as the eurozone grapples with rising trade tensions and mounting economic uncertainty stemming from US tariff threats.

The move, which was widely anticipated by markets, marks a continued effort by the ECB to support growth in the 20-nation currency bloc amid faltering business confidence, weakening inflation, and the spectre of a broader global trade slowdown.

“Increased uncertainty is likely to reduce confidence among households and firms,” the ECB said in its policy statement. “The adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions.”

All three of the ECB’s key interest rates were lowered by 25 basis points, with the main refinancing rate set at 2.40% and the marginal lending facility now at 2.65%. The changes will take effect on April 23.

“The European Central Bank delivered its widely expected 25 basis point rate cuts, lowering the deposit facility rate from 3.75% in September 2024 to 2.25%,” Conway said.

“Although Europe has secured a 90-day reprieve from Trump’s global tariff policies, uncertainty remains high and is expected to weigh on growth. The fallout from escalating global trade tensions—particularly the intensifying US-China trade war—poses additional risks. There is growing concern that diverted goods from China could flood European markets, further dampening the region’s economic outlook. Compounding these challenges is the euro’s sharp appreciation against the US dollar since the Liberation Day announcement, which has drawn increasing concern from ECB officials.”

The ECB said inflation has continued to decline, with both headline and core measures easing in March, while services inflation has also cooled. Policymakers believe the disinflation trend is broadly in line with expectations and that inflation will settle around the bank’s 2% medium-term target. However, risks remain tilted to the downside.

Conway also noted that the market is already preparing for more action from the ECB in the months ahead. “While the rate cut was fully priced in by markets, expectations remain for further easing this summer. An additional 25 basis point cut is currently priced in by July, with a 68% probability of that move occurring as early as June. Market participants now see the terminal rate closer to 1.5%, a notable downward revision from the 2% forecast at the start of the year.”

The ECB emphasised that it would continue to take a “data-dependent, meeting-by-meeting” approach to future rate decisions, declining to commit to a specific path. Policymakers reiterated their commitment to ensuring that inflation stabilises sustainably at target, particularly in an environment of “exceptional uncertainty.”