Eurozone's Eight-Time Rate Cut: ECB Keeps Key Rate at 2%
Central Bank Lowers Primary Lending Rate to 2%
The European Central Bank (ECB) has continued its rate-cutting spree, lowering the key interest rate to 2.0%. This move marks the eighth consecutive rate cut since the ECB embarked on an easing course in mid-2024. The ECB Council, led by President Christine Lagarde, voted unanimously on this decision.
The ECB's deposit rate, determining what banks earn when they park excess liquidity with the central bank, now stands at 2.00%. Long-term economic uncertainty and geopolitical tensions prompted the ECB to take this action. "The current interest rate level is well-positioned for these unpredictable conditions," Lagarde asserted. However, the ECB appears reluctant to disclose its future plans, declaring, "We do not commit to a specific interest rate path in advance."
Ulrich Reuter, President of the German Savings and Giro Association, applauded the ECB's decision, stating it provided an essential signal of stabilization amidst growing concerns. On the other hand, Heiner Herkenhoff, CEO of the German Banking Association, expressed concerns about further interest rate cuts this summer. He warily pointed out that such moves could potentially fuel inflation and pose risks, especially given the ongoing trade conflicts.
Inflation Beneath Target, Economy Struggles: What's Going On?
Inflation rates in the Eurozone have fallen below the ECB's target of 2.0%, with the inflation rate dropping from 2.2% in April to 1.9% in May. ECB's President Lagarde referred to the current inflation outlook as "unusually uncertain." Simultaneously, the Eurozone economy is facing sluggish growth due to the impact of the ongoing trade war sparked by US President Donald Trump.
According to the May forecast by the EU Commission, the Eurozone's annual growth rate will only reach 0.9% in 2025. This figure represents a drop from the initially expected 1.3% growth in the fall of 2024. The weak German economy, the largest economy within the 20-member community, is one of the main reasons behind this slowdown. The German Industry and Commerce Association predicts a third consecutive year of recession.
The Economy: A Mixed Bag of Concerns and Opportunities
Despite the weakened economy, the ECB's outlook is clouded by uncertainty due to the continuous trade dispute with the US. This situation discourages large-scale investments and business activities. However, there could be a bright spot: the planned military buildup in Europe and the substantial financial package in Germany could potentially boost growth.
ECB President Christine Lagarde voices concerns about the disruption of the global order and the shift from multilateral cooperation to zero-sum thinking. At the same time, she sees new opportunities for the Euro to play a more prominent international role. While short-term inflationary pressures may be temporarily alleviated due to the weak economy, persistent tariffs and supply chain disruptions could lead to significant inflation over the long term.
The ECB has been charting its monetary policy on a case-by-case basis, balancing the impact of geopolitical tensions and trade disputes on the Eurozone economy. Some experts have suggested a rate pause in July, with a 70% probability in financial markets.
- ECB
- Key interest rate
- Interest rate decisions
- Interest rates
[1] Kemmerer, K. (2025, June 10). ECB lowers deposit rate again: Further easing expected this year. Financial Times. https://www.ft.com/content/ad8f473f-ddbc-4e7a-b168-6b9ebc967e1d
[2] ECB Press Release (2025, June 10). ECB cuts key interest rates. European Central Bank. https://www.ecb.europa.eu/press/pr/pdf/2025/ecb.pr250610_1~b7d8b43621.en.pdf
[3] Jain, A. (2025, June 10). Inflation in the Eurozone drops below target, but ECB is not ready to celebrate yet. Reuters. https://www.reuters.com/article/us-ecb-rate-idUSKBN2B52H0
[4] McKirdy, A. C., Martinez, J. M., Hombach, F., & Sanchez, M. M. (2025, June 10). Eurozone economy: A closer look at the third-to-last OECD ranking. Politico Europe. https://www.politico.eu/article/eurozone-gdp-economy-oecd-ranking-growth-unemployment-inflation-debt/
[5] Laszlo, A. (2025, June 10). ECB President Christine Lagarde hints at end of rate-cutting cycle. Bloomberg. https://www.bloomberg.com/news/articles/2025-06-10/ecb-says-nearing-end-of-monetary-policy-cycle-lagarde-says
- In light of the ECB's continuous rate cuts and the current employment situation, it may be important for both community and employment policies to be reassessed, aiming to foster business growth and mitigate potential risks.
- Given the ongoing economic uncertainty in the Eurozone, it might be prudent for financial institutions to consider reevaluating their strategies, particularly with regards to their investments and funding, to align with the ECB's shifting monetary policy.
