London
CNN
—
The European Central Bank on Thursday cut its main interest rate again, citing slowing price rises.
The widely anticipated move takes the ECB’s main rate to 2%, from 2.25% previously, and marks the eighth time the central bank has slashed borrowing costs since last June as inflation has tumbled from multi-decade highs. Year-on-year consumer price inflation across the 20 countries using the euro dropped to 1.9% last month — falling below the ECB’s 2% target for the first time since September.
The decision risks provoking further attacks by President Donald Trump on the Federal Reserve for not following suit and lowering borrowing costs in the United States.
The Fed has kept interest rates steady in recent months, opting to wait and see how the president’s trade war will impact the world’s largest economy before deciding whether to cut or raise rates.
Trump has used the ECB’s recent rate cuts as a cudgel with which to pressure Fed Chair Jerome Powell.
“‘Too Late’ Powell must now LOWER THE RATE. He is unbelievable!!! Europe has lowered NINE TIMES!” Trump wrote in a social media post Wednesday in anticipation of the ECB’s decision. (Fact check: The ECB had by that point cut its main rate seven times since it started lowering borrowing costs in June 2024).
Hussain Mehdi, an investment strategist at HSBC Asset Management, said the ECB is in “an enviable position.”
“Underlying inflation is back at pre-Russia/Ukraine (war) levels,” he said Thursday, adding that inflation in Europe was likely to continue slowing due to a stronger euro and lower oil and gas prices. “Tariffs may also help keep prices in check, given they weigh on demand.”
Central bankers tend to lower the cost of borrowing when they feel the economy needs juicing. And Trump’s trade war risks sapping economic growth in Europe, America and the rest of the world.
ECB President Christine Lagarde told reporters Thursday that “a further escalation in global trade tensions and associated uncertainties could lower euro area growth by dampening exports and dragging down investment and consumption.”
The European Union has been working to strike a trade agreement with the US, conscious in particular of Trump’s recent threat to slap a 50% tariff on goods arriving from the bloc.
Maroš Šefčovič, the EU’s top trade representative, told reporters Wednesday that negotiations with his US counterpart, Jamieson Greer, were progressing “at pace” and “in the right direction.” Similarly, Greer said the talks were “advancing quickly.”
Underscoring the importance of these talks, Felix Schmidt, senior economist at bank Berenberg, said Monday that “uncertainty is holding back the eurozone economy more than the stance of monetary policy.”
“If this uncertainty diminishes in the wake of a deal between the US and the EU, as we expect, growth should rebound,” he wrote in a note.
