Down to two percent ECB cuts key interest rate again by 0.25 percentage points

The European Central Bank cut its key interest rate again on Thursday, by 0.25 percentage points.

Keystone-SDA

05.06.2025, 14:19

05.06.2025, 14:27

SDA

The eurozone economy, threatened by high US tariffs, can hope for cheaper loans: The European Central Bank (ECB) is cutting key interest rates in the eurozone for the eighth time since June 2024.

This will make it cheaper for companies to borrow money for investments - which could boost the economy. Savers, however, must expect lower overnight and fixed-term deposit interest rates.

The ECB is lowering the deposit rate, which is important for banks and savers, by 0.25 percentage points to 2.0 percent. This means that the central bank has halved the deposit rate since it began cutting interest rates last summer.

In addition, the euro currency guardians are further reducing the interest rate at which commercial banks can obtain fresh money from the central bank: Instead of 2.4 percent, it will now be 2.15 percent.

The central bank did not initially provide any specific information on the future course of the rate: the situation is still characterized by "exceptionally high uncertainty".

Tariff dispute poison for the economy

Economists had expected the move as inflation in the eurozone has fallen significantly. At the same time, the customs dispute with US President Donald Trump is weighing on the economy. The uncertainty alone is poison, as ECB Vice President Luis de Guindos emphasized in an interview: the trade conflict is affecting investments, weakening household confidence and reducing the growth prospects of the European economy.

"The trade negotiations have not yet been concluded, but ultimately the tariffs will probably be higher than before the new US administration took office," said de Guindos. Should China also divert exports to Europe due to US trade barriers, this would have a further "significant impact".

Strong euro as an opportunity for global trade

ECB President Christine Lagarde also sees considerable risks for the economy as a result of the shake-up of the world order that has existed for decades, as she recently said in Berlin. "Multilateral cooperation has been replaced by zero-sum thinking and bilateral power games," criticized Lagarde, without literally naming Trump. At the same time, new opportunities are opening up: "In view of the current changes, the time seems ripe for a greater international role for the euro."

Inflation on the retreat

The ECB's main objective is stable prices and therefore a stable euro. It sees this being achieved in the medium term with an inflation rate of 2.0 percent in the currency area of the 20 states. According to an initial estimate by the statistics office Eurostat, the inflation rate actually fell below the ECB target in May, dropping to 1.9%.

The higher the inflation, the lower the purchasing power of the people, because they can then afford less for one euro. However, central banks also want to avoid permanently falling prices as far as possible: Because in this case, companies and consumers could postpone investments in the hope of even lower prices soon - which would slow down the economy.

Last interest rate cut for now?

There are many indications that the interest rate cut that has now been decided is the last one in the eurozone for the time being. Even advocates of a loose monetary policy, such as Greece's central bank chief Yannis Stournaras, expect a pause after the June rate cut, as he recently said.

ECB Director Isabel Schnabel also recently stepped on the brakes and called for a "steady hand" interest rate policy. And Bundesbank President Joachim Nagel warned his colleagues in the ECB Governing Council to remain "cautious" in view of the high level of uncertainty in monetary policy.

Metadata Storytype:PreludeGenre:NewsLocation:World, Europe/GermanyPublished on:05.06.2025 14:22Channel:Economy, Finance, BankingDesk:AWPPriority:Prio 3Number of characters:3641Author:to