The European Central Bank has cut its benchmark interest rate by a quarter point to 2 per cent as it grapples with uncertainty over the impact of Donald Trump’s trade war.
Thursday’s widely expected decision is the central bank’s eighth quarter-point cut in a year. Since June 2024, rate-setters have now halved borrowing costs from a peak of 4 per cent.
There was little reaction to the decision in markets, with the euro unchanged against the dollar at $1.142. Traders continued to expect one further interest rate cut in the second half of the year, with a small chance of a second.
Most analysts predict that the unexpected strength of the euro since the US president’s “liberation day” tariff announcements in April, combined with lower energy prices and a potential rise in imports from China, will keep a lid on consumer price rises in the Eurozone.
“The risk of inflation undershooting target has clearly increased,” ING’s head of global macro Carsten Brzeski wrote in a note after the decision.
The central bank lowered its inflation outlook for this year to its medium-term 2 per cent target, down from the 2.3 per cent it predicted in March.
It also warned that “the uncertainty surrounding trade policies” would “weigh on business investment and exports, especially in the short term”.
