Frankfurt, April 17, 2025 – The European Central Bank made yet another 25-basis-point interest rate cut on Thursday as global tariff turmoil has created widespread uncertainty and spurred fears about the euro zone’s economic growth.
A rate cut was fully anticipated by markets, with a roughly 94% chance of a 25-basis-point trim being priced in ahead of the decision, according to LSEG data.
The cut takes the ECB’s deposit facility rate, its key rate, to 2.25%. At its highs in mid-2023 it had been at 4%.
Tariff developments in recent weeks are widely seen by analysts and economists as a key reason for the ECB to cut interest rates.
Even though many of the initial duties imposed by the U.S., as well as retaliation measures, have been put on ice or eased, fears about how they could affect economic growth have been rife.
In its policy statement, the ECB said that the “outlook for growth has deteriorated owing to rising trade tensions.”
It added, “Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions.”
The ECB on Thursday also said that “the disinflation process is well on track.”
“Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis.”
The ECB appears open to further interest rate cuts after announcing a 25 basis point trim, according to Mark Wall, chief European economist at Deutsche Bank.
“The forwarding-looking view on the economy implies an expected shock from tariffs, and the characterisation of ‘exceptional’ uncertainty, implies an openness to further monetary easing assuming the trade shock persists and is borne out in the data,” Wall said in a note.
“We continue to expect another rate cut in June and a terminal rate of 1.5% by year-end,” Wall said.
This sentiment regarding further cuts was echoed by other economists and analysts, with Capital Economics Chief Europe Economist Andrew Kenningham saying the ECB was likely to cut rates at both its June and July meetings.
“We are in the presence of a negative demand shock,” ECB President Christine Lagarde said during a press conference as she noted that while some tariffs are in place, “something that could be far more impactful” could be on the horizon.
Lagarde said there would likely be some re-routing of goods supplied by markets that are facing higher duties, and other policies that do not necessarily link to trade, but fiscal matters and investments, were also at play.
She indicated that tariffs could have a negative impact on economic growth, while the “net impact on inflation is less than clear at this point in time.”
Some of the factors at play could settle by the ECB’s June meeting, but others would take longer to become more certain, she said. (CNBC)
