The European Central Bank has cut its benchmark interest rate by a quarter point to 2 per cent as it grapples with uncertainty over the impact of Donald Trump’s trade war.
The decision, which was widely expected by economists, is the central bank’s eighth quarter-point cut in a year. Since June 2024, rate-setters have now halved borrowing costs from a peak of 4 per cent.
The move comes just two days after official data showed annual inflation in the Eurozone fell below the ECB’s medium-term 2 per cent target in May — for the first time since September.
There was little reaction to the decision in markets, with the euro unchanged against the dollar at $1.142. Traders continued to expect one further interest rate cut in the second half of the year, with a small chance of a second.
Most analysts predict that the unexpected strength of the euro since the US president’s “liberation day” tariff announcements in April, combined with lower energy prices and a potential rise in imports from China, will keep a lid on consumer price rises in the Eurozone.
Economists also expect that tariff tensions will dent short-term growth as demand for European goods in the US weakens.
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