ECB Cuts Interest Rates to 2.25% for the Seventh Consecutive Time Since June

The European Central Bank (ECB) slashed its key interest rate by a quarter point to 2.25% on Thursday, marking its seventh consecutive cut since June 2024.

This bold move responds to escalating economic uncertainty, driven largely by President Trump’s disruptive trade policies. Inflation across the euro area has steadily declined in 2025, falling from 2.5% in January to 2.2% in March, signaling a cooling economy.

Core inflation, which strips out volatile items like petrol and food, also eased from 2.6% to 2.4% over the same period, reinforcing the trend.

The ECB’s rate cut aims to reduce borrowing costs throughout the 20-member euro area, countering sluggish growth and the fallout from Trump’s tariffs.

In a statement after the move, the ECB’s governing council said the outlook for growth had deteriorated owing to rising trade tensions.

“Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions. These factors may further weigh on the economic outlook for the euro area.”

These tariffs, expected to hike domestic prices, dampen demand, and stifle hiring, pose a growing threat to economic stability.

Germany, the eurozone’s export powerhouse, is particularly vulnerable, grappling with tariffs on goods shipped to the U.S. and a faltering global economy.

President Trump has intensified trade tensions, imposing a 10% tariff on nearly all imports to the U.S. from most countries, with steeper duties on cars and steel.

This aggressive stance has heightened fears of a global trade war, unsettling markets and policymakers alike. The ECB noted that while the euro area has developed some resilience to global shocks, rising trade tensions have darkened the growth outlook.

Just last month, optimism prevailed as increased European fiscal spending, especially on defense, and lower inflation were expected to boost consumer spending. Yet, that hope has evaporated, replaced by concerns of a looming recession if uncertainty continues to suppress business investment and consumer confidence.

With all key inflation indicators trending downward, the ECB seized the opportunity to further ease monetary policy.

This action aligns with a global pattern, as financial markets predict interest rate cuts by major central banks in 2025 to offset tariffs’ drag on trade and growth.

In the UK, investors anticipate a quarter-point reduction in borrowing costs in May, followed by two more cuts later in 2025, driven by tariff-related uncertainty eroding business and consumer sentiment.

This ECB decision underscores a critical pivot, as Europe braces for the economic ripple effects of Trump’s trade agenda and a shifting global landscape.

Subscribe to Notifications