The European Central Bank will probably lower interest rates by 0.25 percentage points on Thursday as European growth remains modest and inflation continues to fall and President Donald Trump’s trade war adds uncertainty. ECB President Christine Lagarde will present the bank’s future projections to the public through a press conference following the interest rate announcement.
The ECB would implement its eighth interest rate reduction since June 2024 which would lower the benchmark rate to 2%. Market participants are more interested in Lagarde’s indication of future rate cuts because of rising trade uncertainty.
The European economy faces uncertainty because Trump implemented a 20% tariff on European goods and threatened to increase it to 50% if trade negotiations fail. The European Commission has chosen to delay its planned retaliation until July 14 to pursue trade negotiations. The EU executive body reduced its 2025 growth projection to 0.9% from 1.3% based on expectations that the tariffs will decrease to a maximum of 10%.
The ECB maintains flexibility because inflation rates decreased to 1.9% in May from 2.2% in April as energy prices decreased. The ECB now has increased flexibility to implement monetary policies because of declining inflation which protects weak economic growth from external trade pressures and internal structural issues.
