Catenaa, Thursday, June 05, 2025- The European Central Bank(ECB) has cut its benchmark interest rate by 25 basis points on Thursday, as it grapples with uncertainty over the impact of Trump’s trade war.
Thursday’s widely expected decision is the central bank’s eighth 25 basis point cut in a year. Since June 2024, bringing the borrowing costs to 2% from a peak of 4%.
There was little reaction to the decision in markets, with the euro unchanged against the dollar at $1.142. Traders continued to expect one further interest rate cut in the second half of the year, with a small chance of a second.
“We cut interest rates by 25 basis points, and with today’s cut at the current level of interest rates, we believe that we are in a good position to navigate the uncertain conditions that will be coming up.” ECB President Christine Lagarde.
The central bank lowered its inflation outlook for this year to its medium-term 2% target, down from the 2.3% it predicted in March.
It also warned that “the uncertainty surrounding trade policies” would “weigh on business investment and exports, especially in the short term”.
In its post-decision statement, the ECB said short-term uncertainty over trade may be outweighed in the medium term by the stimulus from rising public spending:
While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term.
