ECB Cuts Interest Rates By 25bps, Sees 2% Inflation

The European Central Bank (ECB) has officially cut all three of its key interest rates by 25 basis points, The decision comes amid easing inflation and mixed growth signals across the eurozone.

New ECB Interest Rates (Effective from June 11, 2025):

Deposit Facility: Cut from 2.25% to 2.00%

Main Refinancing Rate: Cut from 2.40% to 2.15%

Marginal Lending Facility: Cut from 2.65% to 2.40%

These moves were in line with market expectations.

Inflation and Growth Outlook

According to the ECB’s updated Eurosystem staff projections:

Headline inflation is expected to average 2.0% in 2025, 1.6% in 2026, and rise again to 2.0% in 2027.

Core inflation (excluding energy and food) will likely average 2.4% in 2025, and ease to 1.9% in both 2026 and 2027.

Meanwhile, real GDP growth is forecast at:

0.9% in 2025

1.1% in 2026

1.3% in 2027

Trade Tensions & Global Risks

The ECB highlighted that trade policy uncertainty—including tariffs and geopolitical tensions—is likely to hurt business investment and exports in the near term.

However, rising government spending, especially in defence and infrastructure, is expected to support growth over the medium term.

Two scenario analyses were also released:

If trade tensions worsen: Growth and inflation could drop below current projections.

If trade tensions ease: Growth could improve, though inflation would rise only slightly.

Policy Stance Going Forward

The ECB made it clear that it is not committing to any future rate path. Instead, it will make decisions meeting by meeting, depending on:

The outlook for inflation,

Incoming economic and financial data,

The transmission of monetary policy.

The ECB also noted that financing conditions have improved recently, despite earlier concerns due to April’s market volatility.

Asset Purchase Update

The ECB confirmed that its Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios continue to decline at a steady pace, as the central bank has stopped reinvesting maturing securities.

Key Takeaways

The ECB is cautiously lowering rates after a long pause.

Inflation is near the 2% target, but global uncertainties remain.

Monetary policy will remain flexible and data-driven.

The eurozone economy faces headwinds, but improved labour markets and government investment could help.

Bottom Line:
The ECB is starting to ease its monetary stance as inflation stabilizes, but it remains cautious amid global uncertainties, especially around trade. All eyes now turn to incoming data and the ECB’s next steps.