ECB Lowers Rates Again as Growth Outlook Worsens Amid Trade Uncertainty

The European Central Bank cut interest rates by 25 basis points on Thursday, citing growing trade tensions and rising uncertainty as key factors weighing on the eurozone’s economic prospects, CNBC reports.

The widely expected move lowered the ECB’s key deposit facility rate to 2.25%, down from its peak of 4% in mid-2023. Markets had largely priced in the cut, with data from LSEG showing a 94% probability of the decision in the days leading up to the meeting.

The ECB’s policy statement pointed directly to ongoing global trade disputes, especially recent developments involving US tariffs, as a major influence on the economic outlook.

“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 said.

Increased uncertainty, it noted, is likely to erode confidence among both households and businesses. The ECB also warned that volatile market responses to the trade conflict are tightening financial conditions, potentially dampening investment and consumption across the region.

Though some of the tariffs initially proposed by the US and retaliatory measures from global partners have been delayed or softened, the underlying tension remains a concern for policymakers. The ECB emphasized that these dynamics could further depress growth in the euro area.

Attention now turns to ECB President Christine Lagarde’s post-meeting press conference, where investors are keen to hear whether the central bank will signal any shift in its stance on future policy. In particular, markets are watching closely for references to the so-called “neutral rate” — the theoretical level at which interest rates neither boost nor restrain the economy.

Julien Lafargue, chief market strategist at Barclays Private Bank, said in a note that while Thursday’s rate cut was anticipated, markets will be focused on whether the ECB hints at a move toward accommodative policy — potentially lowering rates below the neutral level — in the months ahead.

Despite the rate cut, the euro slipped against the US dollar, trading around 0.3% lower by early afternoon in London. Meanwhile, European stock markets were slightly weaker ahead of the announcement, with the pan-European Stoxx 600 index down approximately 0.5%.

As trade tensions continue to cloud the global economic landscape, the ECB’s cautious tone suggests that further policy action may be on the table should growth prospects deteriorate further.