ECB Cuts Interest Rates to 2% – The 8th Reduction

The Governing Council decided today to cut the three key interest rates by 25 basis points. Specifically, the decision by the ECB’s Governing Council to reduce the deposit facility rate – which guides monetary policy – is based on an updated assessment of inflation prospects, underlying inflation dynamics, and the strength of monetary policy transmission. Inflation is currently forming around the medium-term target of 2%. According to the baseline scenario of the new projections from Eurosystem experts, overall inflation is expected to average 2.0% in 2025, 1.6% in 2026, and 2.0% in 2027. Downward revisions compared to March projections reflect mainly assumptions of lower energy prices and a stronger euro. Experts anticipate that inflation excluding energy and food prices will average 2.4% in 2025 and 1.9% in 2026 and 2027, remaining largely unchanged since March. Real GDP growth is expected to average 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027. Despite uncertainty surrounding trade policies negatively impacting business investments and exports, rising public investment in defense and infrastructure will support medium-term growth. Higher real incomes and a strong labor market will allow households to spend more, bolstered by favorable financing conditions, strengthening economic resilience against global disruptions. The Governing Council remains committed to ensuring inflation stabilizes sustainably at its medium-term target of 2%. Under current exceptional uncertainty, it will follow a data-driven approach, making decisions meeting by meeting to determine the appropriate direction of monetary policy.