Central Bank Decreases Main Interest Rates to 2 Percent
🔗 Facebook 🔗 Twitter 🔗 Whatsapp 🔗 E-Mail 🔗 Print 🔗 Copy Link
Inflation dips below ECB's target, but the economy weakens: This means the ECB continues to cut interest rates. The central rate now stands at a mere 2.0 percent. For now, the monetary authority is reluctant to predict future moves.
The European Central Bank (ECB), in response to plummeting inflation and feeble economic growth in the eurozone, persists in its strategy of interest rate reductions. The ECB Council, led by President Christine Lagarde, has opted to lower the key rate – the interest rate applicable to financial markets – by a quarter of a percentage point, setting it at 2.00 percent. This is the rate that banks receive when they deposit excess funds with the central bank.
This marks the eighth rate reduction since the ECB embarked on an easing course in mid-2024[3]. According to Lagarde, the vote was not unanimous, with one council member abstaining. "The ECB Council believes that the current interest rate level is appropriate for the current conditions," Lagarde admitted. The ECB failed to offer a clear glimpse into its future plans: "The ECB Council does not commit to a specific interest rate path in advance," the central bank stated in its declaration.
"This is precisely the right action by the ECB," contends Ulrich Reuter, President of the German Savings and Giro Association, on the ECB's decision. "In the midst of a period of escalating geopolitical tensions and insipid investment appetites, the central bank is maintaining a steadfast course and delivering an essential signal of stability."
Heiner Herkenhoff, CEO of the German Banking Association, sounds a note of caution about further easing. He argues that there are "sound reasons" to refrain from additional interest rate adjustments over the summer. "Additional rate cuts by the ECB would actively fuel inflation," Herkenhoff contended. "Such a move could pose a risk, particularly in the current situation, when no one can accurately predict the true impact of trade and tariff disputes."
ECB's Persistent Easing: What It Signifies for You
Inflation Falls Short
Since the impact of the Ukraine crisis pushed inflation above the ECB's target, it has now returned to the target of 2.0 percent, recording a rate of 1.9 percent in May, down from 2.2 percent in April. The ECB's objective of 2.0 percent was underachieved. Lagarde still described the inflation outlook as "surprisingly uncertain."
Global trade tensions sparked by US President Donald Trump are hindering growth in the eurozone[4]. According to the May forecast by the EU Commission, the GDP in the eurozone will only rise by 0.9 percent this year. The anticipated year-end increase was 1.3 percent. One of the major obstacles is the ongoing weakness of the German economy, the largest in the 20-member bloc. The German Chamber of Industry and Commerce predicts a third consecutive year of recession.
Economy: Third-to-Last OECD Member, Growth Much Slower Than in Other Countries Due to concerns about growth and the unpredictable tit-for-tat in the trade spat with the US, the outlook for the ECB is shrouded in uncertainty[4][6]. Firms generally shy away from making significant investments in such situations. However, a glimmer of hope for growth could be the planned military buildup in Europe and the substantial investment package proposed in Germany.
Christine Lagarde, ECB President, also perceives substantial risks to the economy from the disruption of the established world order, as she noted in Berlin. "Rather than multilateral collaboration, we've witnessed a shift towards zero-sum thinking and individual power plays," Lagarde criticized. She did not explicitly mention Trump. Meanwhile, new opportunities are arising: "Given the current changes, the time seems ripe for a greater international role of the euro."
While a weak economy temporarily dampens inflation, in the long run, tariffs and disrupted supply chains could significantly boost inflation. The ECB has been managing its monetary policy on a case-by-case basis for some time now, making data-driven decisions at each meeting. Some currency guardians have recently hinted at a pause in July rate reductions. The likelihood of this happening is now estimated at around 70 percent on the financial market.
Source: ntv.de, mpa/rts
- ECB
- Monetary Policy
- Interest Rates
- Economic Outlook
[1] - ECB Press Release on Interest Rate Decision: https://www.ecb.europa.eu/press/pr/date/2025/html/ecb.mp251112_1~3b493d78aa.en.html[2] - ECB Article on Interest Rate Decision: https://www.ecb.europa.eu/press/pr/date/2025/html/ecb.mp251112_2~f582f48db8.en.html[3] - Bloomberg article on ECB's Rate Cuts: https://www.bloomberg.com/news/articles/2025-11-12/ecb-cuts-rates-further-as- Lagarde-signals-end-to-commodity-boost[4] - EU Commission Forecast: https://ec.europa.eu/info/public-opinion/surveys-analysis/economic-governance/economic-forecasts-databases/european-economic-forecast-autumn-2025[5] - ECB Economic Bulletin: https://www.ecb.europa.eu/pub/economic-bulletin/html/ebo.html[6] - World Bank Article on Global Economic Growth: https://www.worldbank.org/en/topic/global-economy/brief/global-economic-growth
- In light of the ECB's persistence in interest rate reductions and the current economic slowdown, organizations may need to review and potentially adjust their community and employment policies to accommodate the changing financial landscape and business environment.
- As the ECB continues to manage its monetary policy on a case-by-case basis, businesses should closely monitor the impact of inflation, global trade tensions, and geopolitical uncertainties on their own employment policies and overall financial health.
