Catenaa, Thursday, April 17, 2025- The European Central Bank(ECB) cut interest rates by 25 basis points on Thursday as the increasing global trade disruptions adds more uncertainty to the inflation outlook.
ECB President Christine Lagarde said it was unanimously decided to cut rates by 25 basis points instead of 50 basis points as some analysts expected to see as tariffs effects come into play.
“We know that it’s a negative demand shock. We can anticipate that it will have some impact on growth, but the net impact on inflation will only become clearer over the course of time.” Lagarde said.
She also said increasing global trade disruptions are adding more uncertainty to the outlook for euro area inflation. “Falling global energy prices and appreciation of the euro could put further downward pressure on inflation,” she said.
However, she said this could be reinforced by lower demand for euro area exports owing to higher tariff and a rerouting of exports into the euro area from countries with overcapacity.”
European stocks were down on Thursday following the glooming outlook by the ECB.
Furthermore, Lagarde said downside risks to economic growth have increased and the major escalation in global trade tensions and associated uncertainties will likely lower euro area growth by dampening exports, and it may drive down investment and consumption.
“Deteriorating financial market sentiment could lead to tighter financing conditions, increase risk aversion and make firms and households less willing to invest and consume.” Lagarde said.
She said the 2% inflation target is still what the ECB is looking for the euro area despite the uncertainties that rose in the past few weeks.
