ECB cuts interest rates by 25 bps for their 7th consecutive cut

The European Central Bank (ECB) cut its key interest rate by 25 basis points on Thursday, lowering the deposit facility rate from 2.5% to 2.25%. This is the seventh straight cut, and it happened during growing pressure over global trade tensions.

The cut was expected, with traders pricing in a 94% likelihood before the official announcement, based on market behavior. The interest rate had peaked at 4% during the middle of 2023, and the central bank has been chopping it down step by step since then.

On Thursday, the ECB confirmed that ongoing tariff battles and international economic uncertainty had worsened growth expectations across the eurozone. In a written statement, the bank said the “outlook for growth has deteriorated owing to rising trade tensions.”

The ECB also said that the uncertainty is likely to reduce confidence among families and companies and that the ongoing chaos in markets is putting extra pressure on financing conditions.

The statement was part of the ECB Governing Council’s official decision on rates. The council gave no timeline for future cuts, but analysts are watching what happens next closely. The trade situation has become the main factor driving their decisions.

Even though some tariffs from the U.S. and retaliation from others have been put on hold or softened, the bank made clear that it’s still worried about the effects these actions could have on business and consumer behavior.

Investors react as ECB language stays under microscope

Investors are waiting to hear whether Christine Lagarde, the ECB president, will say more about the neutral rate during her post-decision press conference. That’s the rate where interest levels don’t speed up or slow down the economy. Markets are looking for signs that the ECB might drop below that point soon. There’s no confirmation yet, but it’s now being seen as a real possibility.

Julien Lafargue, who serves as chief market strategist at Barclays Private Bank, said in a statement that “more importantly for markets will be the extent to which the central bank decides to communicate what it perceives to be the ‘neutral rate’, and whether monetary policy could turn accommodative—i.e., go below the neutral rate—in the next six to 12 months.”

The ECB also said Thursday that the euro area economy had built up some resilience to outside shocks, but that new trade disputes were cutting into confidence and raising concerns about longer-term damage. The central bank warned that current market behavior could make borrowing more expensive, even without rate hikes, and that people and businesses might slow down spending.

At around 12:33 p.m. London time, the euro dropped about 0.3% against the U.S. dollar. This fall came just before the rate cut announcement. When U.S. tariffs first came into effect, the euro had actually gone up for a short time, while the dollar dropped, catching many investors by surprise. But now the reaction has flipped, with the euro weakening again as everyone waits to see what the ECB’s next move will be.

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