The ECB lima rates of 0.25%. It is the sixth cut in nine months

The ECB cutd the interest rates for the Sixth time in nine months (from 6 June 2024), continuing the monetary training plan against the global commercial tensions caused by the tariff war inaugurated by the American president Donald Trump and the new plans to increase European military spending. With the inflation approaching the 2% objective (the target will be reached in early 2026, Lagarde said), the Central Institute cut from 25 basis points The rate on deposits, bringing it to 2.5%, a level considered “decidedly less restrictive”.

“Monetary policy is becoming much less restrictive, since rates are making new loans for businesses and families less expensive and the growth of loans is increasing,” wrote the ECB in the press release. Today will probably be the last easy decision to make for central bankers: each choice starting next month will be subject to a more heated debate, given that the concerns about inflation persist.

However, President Christine Lagarde has hinted that the Eurotower could be close to the end of the loosening policy due to “growing uncertainty“Due to German spending plans, geopolitical uncertainties and tariff threats of the United States. The reduction of a quarter of a percentage point brought the reference deposit rate of the institute to 2.5%. The rate reached a record of 4% at the end of 2023 after the upward to tame the increased inflation following the Russian invasion of Ukraine. The process of reduction of inflation is “on the good road“, Frankfurt explained.

The inflation of the eurozone slightly dropped to 2.4% in February. The Institute has revised the consumer prices for 2.3% this year from a previous provision of 2.1%. The ECB has changed the guidelines by explaining that rates are becoming “significantly less restrictive” and adding that they no longer have an important impact on reducing inflation. The change of language is the signal that the markets waited and suggests that the board is preparing for a break. The central bank then reduced the growth forecasts for 2025 and 2026 for the 20 Eurozone countries, respectively 0.9% and 1.2%. Frankfurt also warned on the “current conditions of growing uncertainty”, reiterating his ‘Data Dependent’ policy.

The uncertainty about the repercussions of US duties (President Donald Trump threatened a 25% rate on all EU goods) “will have an impact on growth”, observed Lagarde. The new plans announced on Tuesday by the next German Chancellor Friedrich Merz to spend several hundreds of billions of euros for the defense and infrastructure in the coming years could have an impact on the next choices of the ECB. Germany’s decision is led by fears about the US security guarantees For weakened Europe under the Trump administration.

The proposals must still be approved by the German Parliament and their impacts are currently uncertain, although some analysts believe that such an increase in spending has the potential to feed inflation and discourage further rates cuts. On frozen Russian assets, Lagarde said he was expecting that any decision takes into account international law. Europe wants to use the 300-350 billion dollars of Russian assets, mostly European, US and British government bonds, to help reconstruct Ukraine, but have yet to agree on how to avoid legal causes or create a problematic international precedent. The ECB has long raised concerns about how such a move can influence the will of investors in the future to hold euros in euros.

“It is not up to the European Central Bank to debate, but I would certainly underline that the basis of the international law on which any decision is taken will have importance regarding the other investors,” he observed.