The European Central Bank (ECB) has cut interest rates by 25 basis points, marking its latest effort to support the eurozone economy amid a cooling inflation environment. The move reflects growing confidence that inflation is steadily converging toward the ECB’s medium-term target.
With this decision, the rate on the ECB’s deposit facility has been lowered to 2 percent, while the main refinancing operations rate and the marginal lending facility rate have been reduced to 2.15 percent and 2.4 percent, respectively. This marks the eighth rate cut since June 2024, cumulatively reducing key interest rates by two percentage points.
In a statement, the ECB said, “Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2 percent medium-term target on a sustained basis.” The revised staff projections released in June reflect this view, forecasting inflation at 2 percent in 2025, 1.6 percent in 2026, and 2 percent in 2027. Notably, the projections for 2025 and 2026 have been lowered by 0.3 percentage points compared to the March forecast, reinforcing expectations of sustained disinflation.
Should these forecasts hold, inflation is expected to briefly undershoot the ECB’s target in 2026 before returning to the 2 percent goal the following year. The ECB has signaled that further policy adjustments will depend on future economic data, emphasizing that decisions will be taken “meeting by meeting.”
Alongside changes in its inflation outlook, the ECB slightly revised down its growth forecast for the eurozone. It now expects GDP growth of 0.9 percent in 2025, 1.1 percent in 2026, and 1.3 percent in 2027. The 2026 figure was trimmed from an earlier estimate of 1.2 percent, reflecting ongoing uncertainty.
The ECB also warned that trade tensions, particularly stemming from evolving U.S. trade policies, could impact both inflation and growth, potentially leading to greater volatility in future projections.
As inflation continues to moderate, the ECB is maintaining a cautious but responsive stance, aiming to balance price stability with support for economic recovery.