On Thursday, June 5, the Governing Council of the European Central Bank (ECB) held a meeting. The result: a 25 basis point cut to all three key interest rates.
It is clear that this is the eighth time in a row that the regulator has taken this decision.
The new deposit rate will be 2%, the base rate will be 2.15%, and the marginal lending rate will be 2.4%. The ECB's updated macroeconomic forecast confirms that inflation in the eurozone has reached the target level of around 2% and is showing clear signs of a sustained slowdown. The outlook for the coming years confirms this trend: inflation is set to average 2% in 2025, decline to 1.6% in 2026, and return to the target level by 2027.
Economic growth in the region is subdued. GDP in the eurozone will grow by 0.9% in 2025, 1.1% in 2026 and 1.3% in 2027. These figures indicate a steady recovery, with no indications of economic overheating.
The ECB made it clear that the regulator is not committed to any predetermined course of action regarding interest rates. In the context of high economic uncertainty, we will take decisions on further steps based on incoming data. This will include inflation levels, the state of the economy, and the reaction of financial markets to measures already taken.
The ECB is committed to achieving inflation at its 2% target in the medium term. It will avoid both premature easing and excessive tightening of monetary policy.
The rate cut was exactly what the market expected: most analysts polled by Bloomberg predicted a reduction in the deposit rate to 2%.
This decision is a first step towards a cautious shift in monetary policy towards stimulating the economy. It is not a signal for a series of successive cuts.
Reinhard Kluse, UBS's senior economist, is adamant: the window of opportunity for policy easing will close by the end of summer. He also stated that by 2026, the ECB will have no choice but to reconsider its course and even raise rates if inflationary pressures intensify amid demographic and structural problems in the eurozone labour market.
The ECB began its cycle of monetary policy easing in the summer of 2024, after nine months of keeping rates at record highs. The regulator has already cut its deposit rate by 200 basis points.
Preliminary data from Eurostat shows that annual inflation in the eurozone slowed to 1.9% in May from 2.2% in April. Consumer price growth fell below the ECB's 2% target for the first time since September 2024.