Kathmandu. The European Central Bank (ECB) cut interest rates again on Thursday, amid concerns that US President Donald Trump’s stop-start tariff announcement could threaten growth in the eurozone.
ECB policymakers decided to cut rates by a quarter-point, marking the central bank’s sixth consecutive cut in borrowing costs for the single-currency area. The decision took the ECB’s benchmark deposit rate to 2.25 percent.
That’s the lowest since early 2023. Rate-setters have been gradually lowering borrowing costs in the eurozone as inflation has returned to the ECB’s two percent target. But while inflation is moving in the right direction, “rising trade tensions have dampened the growth outlook,” the ECB said in a statement.
The ECB had been preparing to hold off on its cuts since its last meeting in March, but fears over Trump’s stormy tariff policy appear to have forced it to do so. ING Bank analyst Carsten Brzeski said Thursday’s cut was “not that surprising.” The ECB, which has been taking a “very measured” approach to gradually cutting rates, now risks “falling behind again,” Brzeski said.
Going into the meeting, ECB rate-setters will have little idea of what tariffs will ultimately apply to trans-Atlantic trade and how they might affect growth. Trump has imposed 25 percent tariffs on autos, steel and aluminum in addition to a base tariff rate of 10 percent on imports into the United States. The US president had spooked global markets by unveiling strong “Liberation Day” tariffs in early April, but immediately suspended the high tariffs for 90 days for dozens of countries, including the European Union (EU).
The White House has also launched an investigation into chips and pharmaceuticals that could lead to additional industry-specific tariffs that could impact the eurozone. The ECB said it was facing “extraordinary uncertainty” and would take a “data-dependent and meeting-by-meeting” approach in the coming days. The central bank said the uncertainty was “likely to dampen confidence among households and firms” and that market tensions would lead to tighter financial conditions.
Analysts at Italian lender UniCredit said another cut seemed “straightforward” in that context to ease the strain on households and businesses and support the economy. They said the impact of higher US tariffs would “overshadow” the “positive impact” of planned spending in Germany, the eurozone’s biggest member. The incoming government in Berlin, led by Friedrich Merz, has poured hundreds of billions of euros in extra cash into defense and infrastructure. This has provided a stimulus that can be felt across Europe.
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