Taking advantage of the room created by weaker inflation, the ECB has now lowered interest rates for the eighth time since June 2024. However, the economic outlook remains subdued.

The deposit rate is being reduced by 0,25 percentage points to 2,0 percent. Since the beginning of the rate-cutting cycle, this rate has been cut in half.

The ECB’s macroeconomic forecast continues to paint a cautious picture. For the full year 2025, the bank still expects only weak economic growth. The March projection of 0,9 percent GDP growth is being reaffirmed. However, the forecast for 2026 has been revised down to 1,1 percent from the previous 1,2 percent. For 2027, the central bank continues to project growth of 1,3 percent.

Trade Dispute with U.S. Clouds Outlook

Uncertainty currently stems from the tariff dispute with the United States and its potential impact on the global economy. On the other hand, planned multi-billion euro increases in defense spending across Europe are expected to provide some growth stimulus.

Inflation Moving Toward Target

Inflation in the eurozone is expected to decline more quickly than previously anticipated, the ECB noted. For the current year, the ECB now forecasts an inflation rate of 2,0 percent, down from 2,3 percent in March.

In 2026, the average increase in consumer prices is projected at 1,6 percent (previously 1,9 percent), and for 2027, the ECB maintains its forecast of 2,0 percent.

No Clear Signal on Future Monetary Policy

There were no specific indications given regarding the future course of monetary policy. The situation continues to be marked by «exceptionally high uncertainty.»

Recently, statements by members of the ECB’s Governing Council and Executive Board have emphasized a cautious stance. This is being interpreted as a signal that a pause in rate changes may follow for the time being.