The European Central Bank (ECB) has made a significant decision to cut interest rates by 25 basis points, lowering the deposit rate to 2% from 2.25%. This move marks the lowest interest rate since December 2022. The decline in inflationary pressures across the eurozone has provided the ECB with the flexibility to adjust rates towards a more neutral stance.
There is a growing concern about the risk of inflation undershooting, prompting speculation that this rate cut may be one of several to come. Inflation in the eurozone is diminishing more rapidly than anticipated. Factors contributing to this trend include shifts in global economic conditions, particularly influenced by U.S. policies that have inadvertently stabilized the European economy, at least temporarily.
A stronger euro and decreasing oil prices, possibly linked to unpredictable U.S. economic maneuvers, have further intensified disinflationary trends within the region. Current projections from the ECB’s staff indicate a forecast of headline inflation at 2% for 2025, 1.6% for 2026, and 2% again in 2027. Despite some unexpected resilience within the eurozone economy, the looming risk that inflation could fail to meet targets has compelled the ECB to act.
During the upcoming press conference at 2:45 PM CET, all attention will be on ECB President Christine Lagarde. Investors and analysts alike will be looking for insights into future monetary policy directions. Unless trade conflicts escalate, the ECB is likely to adopt a cautious stance over the summer, as it evaluates whether current disinflationary pressures are transient or indicative of a more significant trend.
Additionally, a resilient eurozone economy may raise concerns about potential inflationary impacts from projected fiscal stimulus in Germany for 2026 and beyond. As a result, expectations are high regarding Lagarde’s forthcoming comments on the ECB’s trajectory, though it remains unclear if she will provide specific indications.