ECB Cuts Interest Rate by 0.25%P to 2.5% Amid Trump Tariff Pressure (Comprehensive)

"Reflecting High Trade Policy Uncertainty"

Amid tariff pressures from U.S. President Donald Trump, the European Central Bank (ECB) has lowered its policy interest rate to 2.5%.

EPA Yonhap News

On the 6th (local time), the ECB held a monetary policy meeting and announced a 0.25 percentage point cut in the deposit rate from 2.75% to 2.5% per annum.

The ECB operates its monetary policy mainly around the deposit rate. Since the ECB began cutting rates in June last year, the deposit rate has fallen a total of 1.5 percentage points in six steps, from a high of 4.0% to 2.5%. The current rate is the lowest level since February 2023.

The ECB stated that the decision "reflects a decline in exports and continued weak investment due to high trade policy uncertainty and broad policy uncertainty."

Christine Lagarde, President of the ECB, said, "High domestic and international uncertainty is hindering exports and investment," adding, "This will weigh more heavily on growth than previously expected."

This ECB rate cut decision came as President Trump announced tariffs against Europe and as moves to increase European defense spending are gaining momentum. Concerns are spreading that Eurozone growth could be hit as companies reduce investment in preparation for tariff uncertainties. However, if defense spending expands amid the rise of European self-reliance, it could lead to increased market liquidity and inflation. Accordingly, there are also opinions that the pace of rate cuts should be adjusted because it is difficult to predict the future impact on growth, inflation, and the economy.

Regarding this, the ECB stated that "interest rates are becoming meaningfully less restrictive," suggesting that it may slow the pace of monetary easing going forward.

The ECB lowered its Eurozone economic growth forecast for this year from 1.1% to 0.9%. For next year, it was lowered from 1.4% to 1.2%. The inflation forecast for this year was raised from 2.1% to 2.3%, while the forecast for next year was maintained at 1.9%.