Faced with the “exceptional uncertainty” generated by the trade tensions triggered by US President Donald Trump, the ECB decided, on Thursday 17 April, to cut its three main key rates by 25 basis points for the seventh time since June 2024.
From Wednesday 23 April, the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will be decreased to 2.25%, 2.40% and 2.65% respectively.
Citing a “unanimous” decision by the Governing Council, the ECB President, Christine Lagarde, said that the euro area economy was facing “a negative demand shock”: disruptions to international trade, the extent of which remains uncertain, tensions on financial markets and geopolitical uncertainty are weighing on business investment and increasing consumer caution.
It is the reason why the already real negative impact of this situation on growth and, in the future, on the disinflation process underway, have convinced the Frankfurt monetary institute to cut key rates, said Ms Lagarde. Nevertheless, she admitted that the ECB’s monetary policy could no longer be considered as penalising for the economy. In fact, language about the restrictive nature of monetary policy was removed from Thursday’s press release.
Asked about the development of monetary policy, Ms Lagarde pointed out that the ECB was taking decisions, meeting-by-meeting, based on updated data, with the ultimate objective of stabilising price rises at 2% over the long term. She stressed on several occasions that the Governing Council had to be ready for any eventuality (“readiness”) and show “agility” in the face of a changing situation.
On the economic front, Ms Lagarde noted that the euro area economy had developed a degree of resilience in the face of global shocks, even though the outlook for growth had deteriorated. In February, unemployment fell to 6.1% of the working population in the euro area, “its lowest level since the launch of the euro”, she also noted.
Nevertheless, the former Managing Director of the IMF considered that “downside risks (...) have increased”, with the Trump administration already applying certain cross-cutting customs tariffs.
Against an unpredictable backdrop, Ms Lagarde advocated proactive action by the euro area countries. “It is even more urgent for fiscal and structural policies to make the euro area economy more productive, competitive and resilient”.
She recommended: - the swift implementation of the European Commission’s ‘Competitiveness Compass’, including regulatory simplification measures (see EUROPE 13568/1); - the completion of the savings and investments union (SIU) project to “help savers benefit from more opportunities to invest and improve firms’ access to finance, especially risk capital” (see EUROPE 13603/5); - the rapid establishment of the legislative framework to facilitate the introduction of the “digital euro” (see EUROPE 13617/26).
The Governing Council’s next decision-making meeting is scheduled for Thursday 5 June.
See the ECB’s monetary policy decisions: https://aeur.eu/f/gh7 (Original version in French by Mathieu Bion)