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The European Central Bank (ECB) on Thursday announced a 25-basis-point cut to its key interest rate, citing a deteriorating economic outlook driven by escalating global trade tensions, CNBC reported.
The move, widely anticipated by financial markets, brings the ECB’s deposit facility rate down to 2.25%, a sharp decline from its peak of 4% in mid-2023, the report said. Markets had priced in a 94% probability of a rate cut ahead of the decision, it further said, citing the LSEG data.
The central bank pointed to recent tariff developments and heightened geopolitical uncertainty as the primary triggers for the policy shift. In its policy statement, the ECB acknowledged the mounting risks and reportedly said, “The euro area economy has been building up some resilience against global shocks, but the outlook for growth has deteriorated owing to rising trade tensions”.
The bank further warned that uncertainty is weighing heavily on economic sentiment and financial conditions. “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 statement read, according to CNBC.
On a more optimistic note, the ECB indicated that inflation is gradually moving towards its target and reportedly said, “The disinflation process is well on track”, while also adding, “Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis.”
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