The ECB has cut interest rates for the eighth time in a year by one-quarter of a percentage point, which brings its rate down from 2.25% to 2%
The move will immediately benefit tracker mortgage customers and put downward pressure on other rates.
With inflation now safely in line with its 2% target, today’s decision is uncontroversial, shifting the focus to what signals ECB President Christine Lagarde might send about policy ahead.
Some investors are already pricing in a pause in July, and some conservative policymakers have also advocated a break to give the ECB a chance to reassess how exceptional uncertainty and policy upheaval both at home and abroad will shift the outlook.
Following the Governing Council’s decision to lower the three key ECB interest rates by 25 basis points, ECB President Christine Lagarde said they are determined to ensure that inflationstabilises sustainably at its two per cent medium-term target.
“In current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance,” said Ms Lagarde.
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“Our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data,the dynamics of underlying inflation and the strength ofmonetary policy transmission. We are not pre-committing to a particular rate path.”
The ECB’s latest macroeconomic projections signal weaker economic growth in 2026 and softer inflation outlook for both 2025 and 2026, according to Davy.
“These projections represent a downward revision from the estimates published in March,” said Stephen Grissing, Director and Investment Strategist with Davy Private Clients.
“The Euro Area economy remains exposed to elevated risks as trade tariff negotiations with the United States continue. The heightened uncertainty surrounding these talks threatens to disrupt cross-border trade and potentially undermining business confidence in the region.
“The downward revisions to both growth and inflation projections increase the likelihood of further monetary easing by the European Central Bank.
“Futures pricing indicates an additional one to two further rate cuts by the end of the year, which would bring the deposit facility rate to 1.75% or 1.5%.
Mr Grissing added that lower interest rates will be welcomed by homeowners, farmers and companies as they continue to benefit from lower borrowing costs.
