The European Central Bank (ECB) maintained interest rates at 2 percent on Thursday, pausing its year-long policy easing cycle. This decision followed a series of eight cuts—seven of which were consecutive—since June of last year, as policymakers seek clarity on Europe’s future trade relations with the United States.
While the ECB has successfully reduced consumer prices that surged after the pandemic and Russia’s 2022 invasion of Ukraine, officials now confront a new challenge: rising U.S. tariffs under President Donald Trump. With inflation back at the bank’s 2 percent target and interest rates halved since June 2024, monetary policymakers indicated there was no immediate need for further adjustments.
Bank officials noted that trade tensions have rendered the economic landscape particularly difficult to predict. “The environment remains exceptionally uncertain, especially because of trade disputes,” the ECB stated amid ongoing tariff negotiations. They provided no indications regarding the timing of the next move.
Read more: ECB cuts interest rates again amid euro zone economic challenges
Lagarde discusses end of policy cycle
The announcement was widely anticipated, especially since inflation met the target for June. Following the last policy meeting on June 5, ECB President Christine Lagarde remarked that the central bank was “getting to the end of a monetary policy cycle.”
With signs of economic activity appearing reasonably healthy, the ECB can afford to wait until the outcomes of transatlantic trade talks are clearer. “We are determined to ensure that inflation stabilizes at our two percent target in the medium term,” Lagarde said. “We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.”
In January 2025, the ECB lowered interest rates to 2.75 percent. This decision was influenced by concerns over sluggish economic growth, which overshadowed ongoing inflation worries. This represented the fifth rate cut by the ECB since June, with the market anticipating two to three additional reductions this year. The rationale for this expectation stems from the belief that the significant inflation surge seen in recent generations is nearly under control and that the struggling economy needs further support.
