“The outlook for growth has deteriorated owing to rising trade tensions,” said Christine Lagarde, president of the European Central Bank, on 17 April 2025, announcing a 25 basis points cut to the key banking rates in the euro area. Photo: European Central Bank

“The outlook for growth has deteriorated owing to rising trade tensions,” said Christine Lagarde, president of the European Central Bank, on 17 April 2025, announcing a 25 basis points cut to the key banking rates in the euro area. Photo: European Central Bank

The European Central Bank has lowered interest rates by 25bps, marking the seventh consecutive cut since June 2024, as inflation stabilises close to its 2% target and global trade tensions weigh on the eurozone economy.

The European Central Bank has lowered interest rates by 25 basis points for the seventh consecutive time, bringing the total reduction since June 2024 to 175bps. on 17 April 2025, the move reflects the ECB’s ongoing adjustment to evolving economic conditions through its continued policy stance.

This decrease, effective from 23 April 2025, will lower the deposit facility rate (DFR), the main refinancing operations (MRO) rate, and the marginal lending facility rate to 2.25%, 2.40% and 2.65% respectively.

Inflation and economic outlook

ECB president Christine Lagarde elaborated on the central bank’s rationale for the rate cut, pointing to the updated assessment of inflation dynamics. Whilst headline inflation had decreased, underlying inflation was also trending downward. Both headline and core inflation saw reductions in March 2025, and services inflation has notably eased over the previous months. Despite wage growth remaining somewhat elevated, profits were helping to cushion the inflationary impact of these higher wages.

Lagarde indicated that “the disinflation process was well on track,” with inflation expected to converge towards the ECB’s 2% target on a sustained basis. However, she noted that the economic outlook had deteriorated, mainly due to rising global trade tensions. The imposition of a 20% trade tariff by the United States on European Union manufactured products had added to the uncertainty, contributing to lower confidence among both households and businesses. This heightened uncertainty, along with the adverse market reactions to trade tensions, was anticipated to tighten financing conditions, further weighing on the economic prospects for the euro area.

Price stability

In light of these challenges, Lagarde affirmed that the ECB remained committed to ensuring that inflation stabilises sustainably at its 2% target. The ECB governing council, she said, would continue to adopt a data-dependent approach to its monetary policy decisions. The ECB is not committed to a specific rate path but will assess incoming economic and financial data, as well as the strength of monetary policy transmission, when making future decisions.

Lagarde also highlighted that the ECB is ready to adjust all its instruments to maintain price stability. This includes the potential use of the transmission protection instrument (TPI), which could be deployed to counteract any unwarranted market dynamics that pose a threat to the smooth transmission of monetary policy across the euro area.

APP and Pepp

In addition to the interest rate cuts, the ECB also confirmed that the asset purchase programme (APP) and pandemic emergency purchase programme (Pepp) portfolios would continue to decline at a predictable and measured pace. The Eurosystem has ceased reinvesting the principal payments from maturing securities, a further sign of the ECB’s effort to gradually unwind its crisis-era policies.

The next monetary policy meeting is scheduled for 6 June 2025, where the governing council will reassess the economic situation and consider any further adjustments to its policy stance.

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