European Central Bank reduces rates as inflation aligns with target

The European Central Bank has reduced its three key interest rates by 25 basis points, aligning with expectations and reflecting progress toward its inflation target.

The European Central Bank (ECB) lowered its main interest rates by 25 basis points, bringing the key deposit rate to 2% - its lowest level since January 2023. The rates for main refinancing operations and the marginal lending facility were also cut to 2.15% and 2.40%, respectively.

This marks the ECB’s eighth cut since launching its rate easing cycle in June 2024.

According to the ECB, inflation is now near its medium-term target. Projections show headline inflation averaging 2.0% in 2025, 1.6% in 2026, and returning to 2.0% in 2027. GDP growth in the euro area is forecast at 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027.

The central bank also cited uncertainty around global trade, noting that escalating tensions could weigh on growth and inflation, while resolution of disputes could boost both indicators.

The rate decision followed a drop in annual euro area inflation to 1.9% in May and ongoing trade talks between the EU and U.S., after the U.S. postponed proposed tariff hikes on EU goods to July 9.

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