The European Central Bank (ECB) on Thursday cut interest rates by 25 basis points and updated its statement to say that monetary policy has now become “significantly less tight.”
The cut brings the ECB’s deposit facility rate, its main rate, to 2.5%, a move that had been widely expected by markets before the announcement.
The central bank’s six rate cuts in the past nine months come amid sluggish economic growth in the region, as well as the growing threat of tariffs on EU imports to the US.
“Monetary policy has now become significantly less tight, as the interest rate cut makes new borrowing cheaper for companies and households, thereby boosting loan growth,” the central bank said in a statement on Thursday.
Eurozone headline inflation remains below 3%, despite picking up in the final months of 2024.
Data published earlier this week showed that inflation in the region eased to 2.4% in February, lower than January’s reading but slightly higher than expected. Core inflation, which excludes food, energy, alcohol and tobacco, and inflation in the services sector also eased after several months of high rates.
Meanwhile, seasonally adjusted eurozone gross domestic product (GDP) rose by 0.1% in the fourth quarter, according to the latest data from the statistics agency Eurostat.
Thursday’s interest rate decision comes as US President Donald Trump continues his aggressive global tariff policy and European leaders seek to boost defence spending.
Tariffs on goods imported from Europe to the US have yet to be announced, but have been threatened by Trump several times. The exact scale of any tariffs remains unclear, and negotiations are still possible.
European countries are also looking to increase their defense and security budgets, in the wake of deteriorating relations between the US and Ukraine. An increase in defense spending could weigh on key economic indicators such as inflation and growth.
Analysts say the geopolitical developments could trigger more disagreements than usual in the ECB’s Governing Council over monetary policy decisions in the coming months.
ECB officials also appear to be divided on where the “neutral” rate — a rate that neither stimulates nor restricts the economy — lies, and whether rates should be cut below this level to stimulate economic growth.
