ECB cuts key interest rates by 25 basis points

FRANKFURT -- The European Central Bank (ECB) on Thursday made another rate cut of 25 basis points and revised its inflation forecast down in its latest staff projection.

The rate on the deposit facility has been brought down to two percent, and the rates on the main refinancing operations and the marginal lending facility have been cut down to 2.15 percent and 2.4 percent, respectively.

"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," said the ECB in a statement.

According to its staff projections in June, the ECB sees the inflation in the euro area to be two percent in 2025, 1.6 percent in 2026, and two percent in 2027. The projections for 2025 and 2026 have been revised down by 0.3 percentage points compared with the March forecast.

It is worth noting that the inflation would undershoot the ECB target in 2026 should the projections materialize.

Against the backdrop of decreasing inflation, the rate cut on Thursday was in line with expectations of the market.

The ECB slightly adjusted its growth projections for the euro area, now expecting real gross domestic product to expand by 0.9 percent in 2025, 1.1 percent in 2026, and 1.3 percent in 2027. The 2026 forecast was revised down from a previous estimate of 1.2 percent, reflecting a more cautious outlook amid persistent economic headwinds.

The central bank warns that the high uncertainty stemming from the trade tensions brought about by the US trade policies will subject its inflation and growth projections to volatility.

Both inflation and growth will be lower than the baseline projections if trade tensions escalate further, said the ECB statement, citing a scenario analysis by the ECB staff.

Looking ahead, the ECB once again excluded any particular rate path, saying that its monetary policies in the future will be decided meeting by meeting.

Since June 2024, the ECB has made eight rate cuts, totaling a two percentage point reduction of the key interest rates.