The European Central Bank (ECB) has implemented another 25-basis-point interest rate cut on Thursday, driven by global tariff turmoil that has generated widespread uncertainty and heightened concerns regarding economic growth in the euro zone.
Rate cut fully anticipated by markets
A reduction in rates was fully expected by markets, with an approximately 94 percent likelihood of a 25-basis-point trim factored into pricing ahead of the decision, as indicated by LSEG data. This latest cut brings the ECB’s deposit facility rate, its key rate, down to 2.25 percent, a remarkable drop from its peak of 4 percent in mid-2023.
Read more: Markets surge after ECB cuts interest rates for fifth time to 2.75 percent
Tariff developments influence ECB decision
Recent tariff developments are widely regarded by analysts and economists as a crucial factor prompting the ECB to lower interest rates. While many of the initial tariffs imposed by the U.S. and subsequent retaliatory measures have been suspended or moderated, concerns persist about their potential impact on economic growth.
In its policy statement, the ECB remarked that the “outlook for growth has deteriorated owing to rising trade tensions.” It further noted, “Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions.”
Investors are keenly watching for any comments related to tariffs in the ECB Governing Council’s statement and from the central bank’s President Christine Lagarde during her post-meeting press conference.
Markets reacted ahead of ECB’s rate decision
European markets experienced a downturn on Thursday as traders awaited the latest monetary policy decision from the European Central Bank. The Stoxx 600 index fell 0.5 percent at 12:55 p.m. London time, with all sectors declining except for oil and gas.
Shares of Siemens Energy surged 13 percent following an upgrade to its fiscal 2025 outlook. Meanwhile, French luxury brand Hermès, which recently surpassed LVMH as the world’s largest luxury firm by market capitalization, saw its shares dip nearly 3 percent after reporting a narrow sales miss.
