With an eighth straight cut in its key interest rates, the ECB believes that the monetary institute is “in a good position” to deal with uncertainties, notably international trade tensions, and to keep inflation on track at 2% over the medium term.
On Thursday 5 June, on the basis of new inflation and growth forecasts, the Governing Council decided to cut the three key interest rates of the monetary institute by 25 basis points. From Wednesday 11 June, the deposit facility rate, the main refinancing operations and the marginal lending facility will be cut to 2.00, 2.15 and 2.40% respectively.
With this cut, “we believe we are in a good position to navigate the uncertain conditions that will be coming up”, said ECB President Christine Lagarde, reporting an almost unanimous decision by the Governing Council, with only one central banker opposing it.
Asked several times about a possible halt to rate cuts, she refused to answer explicitly, pointing out that the ECB takes its decisions meeting by meeting, on the basis of updated data and without committing itself in advance to a specific path. However, she acknowledged that the ECB was at “the end of the monetary policy cycle” that had enabled it to deal with a combination of macroeconomic shocks, citing the Covid-19 pandemic, Russian military aggression against Ukraine and the energy crisis that this had triggered.
We are now in “a different period”, with different issues at stake, noted the former head of the IMF, perhaps alluding to the international trade tensions provoked by the Trump administration.
The President of the ECB presented the new inflation forecasts for the euro area: 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027. Forecasts for 2025 and 2026 have been revised downwards by 0.3% compared with March (see EUROPE 13594/16). According to Ms Lagarde, the fact that price rises are likely to miss the 2.0% target next year is due to the expected fall in energy prices and the expected rise in the value of the euro. Core inflation (excluding energy and food prices) is expected to rise to 2.4% in 2025 and 1.9% in 2026 and 2027.
As far as the economic situation is concerned, the ECB still considers that downside risks predominate. This is due to the uncertainty surrounding possible US tariffs, combined with a strong euro which is weighing on European exports. Nevertheless, among the encouraging aspects, the monetary institute cites employment, which remains resilient in the euro area, corporate financing conditions, which are easing, and the prospect of increased investment in defence and infrastructure.
On this basis, the ECB expects GDP growth in the euro area to average 0.9% in 2025, 1.1% in 2026 and 1.3% in 2027. For this year, the growth projection, unchanged from March, reflects a better than expected first quarter (0.3% of GDP) and a weaker outlook for the rest of the year.
Ms Lagarde referred to the publication the same day by the monetary institute of scenarios attempting to assess the impact of trade tensions on growth. Given the current context, she urged euro area countries to maintain sound budgetary policies and implement economic policies to boost competitiveness.
Finally, the President of the ECB welcomed the positive assessment made the previous day by the Monetary Institute and the European Commission (see EUROPE 13653/1) regarding Bulgaria’s accession to the euro area from January 2026. The Governor of the Bulgarian Central Bank will be invited to attend meetings of the Governing Council as an observer in the second half of 2025.
And Ms Lagarde cut short rumours that she would not complete her term of office, which runs until October 2027, in order to commit herself to theWorld Economic Forum in Davos. “I am firmly determined to deliver on my mission and to finish my term”, she said.
See the ECB’s monetary policy decisions: https://aeur.eu/f/h70 (Original version in French by Mathieu Bion)