After a 25-basis point-cut in January, another cut of 25 basis points in March and a 25-basis point-cut in April, the European Central Bank announced on 5 June 2025 that it was cutting rates once again. The cut of 25 basis points brings the deposit facility rate (DFR), the main refinancing operations (MRO) rate and the marginal lending facility rate to 2.00%, 2.15% and 2.40% respectively.

“Inflation is currently at around the governing council’s 2% medium-term target. In the baseline of the new Eurosystem staff projections, headline inflation is set to average 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027,” the ECB said in its press release. “The governing council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target. Especially in current conditions of exceptional uncertainty, it will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. The governing council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The governing council is not pre-committing to a particular rate path.”

The ECB’s interest rates hovered around near-zero--and even dipped into negative territory--after the 2008 financial crisis. Faced with an increase in inflation after the start of the covid-19 pandemic in 2020 and then the energy crisis following Russia’s full-scale invasion of Ukraine in early 2022, the European Central Bank began increasing interest rates. Its first rate hike came in July 2022 and the ECB continued this upward trajectory until September 2023, bringing the deposit facility rate to 4.00%, the rate for main financing operations to 4.50% and the marginal lending facility rate to 4.75%. Interest rates then remained unchanged for several months. The ECB’s first rate cut came on 6 June 2024--almost exactly one year ago.