The European Central Bank (ECB) cut interest rates for the seventh time in a year on Thursday, aiming to revive the struggling eurozone economy as fears of a prolonged trade conflict with the US continue to rattle global markets.The ECB reduced its deposit rate by 25 basis points to 2.25%, while the main refinancing rate dropped to 2.40% and the marginal lending facility was lowered to 2.65%. The move comes amid growing concerns that ongoing trade tensions and volatile market conditions could significantly dampen household and business confidence across Europe.
“The euro area faces mounting uncertainty, which is tightening financial conditions and weighing on economic outlook,” the ECB said in a statement. President Christine Lagarde reiterated that decisions will remain data-driven, taken “meeting by meeting” as the economic picture evolves.
Despite a pause in new US tariffs, many remain in force, and the ECB estimates eurozone GDP could shrink by 0.5% this year if the situation escalates—potentially wiping out half of the region’s projected growth. Meanwhile, the euro has surged 9% in recent weeks, hitting a three-year high against the US dollar and reaching a record on a trade-weighted basis, adding further headwinds to export competitiveness.Inflation pressures have eased, with HSBC and other analysts revising forecasts below the ECB’s 2% target. Falling energy prices, sluggish growth, and weaker global demand are all contributing to disinflationary trends.
“The euro area faces mounting uncertainty, which is tightening financial conditions and weighing on economic outlook,” the ECB said in a statement. President Christine Lagarde reiterated that decisions will remain data-driven, taken “meeting by meeting” as the economic picture evolves.
Despite a pause in new US tariffs, many remain in force, and the ECB estimates eurozone GDP could shrink by 0.5% this year if the situation escalates—potentially wiping out half of the region’s projected growth. Meanwhile, the euro has surged 9% in recent weeks, hitting a three-year high against the US dollar and reaching a record on a trade-weighted basis, adding further headwinds to export competitiveness.Inflation pressures have eased, with HSBC and other analysts revising forecasts below the ECB’s 2% target. Falling energy prices, sluggish growth, and weaker global demand are all contributing to disinflationary trends.
Market watchers are now eyeing Germany’s proposed infrastructure and defence spending plans, which could inject fresh momentum into the economy but also trigger inflationary pressures in the coming years. Some economists predict that the ECB may need to begin raising rates by late 2026 to keep inflation in check.
With inputs from Reuters
(Edited by : Ajay Vaishnav)
