European Central Bank cuts interest rates to 2.25% amid tariff war uncertainty

The European Central Bank (ECB) has decided this Thursday to cut interest rates by 25 basis points, bringing the official benchmark rate to 2.25%.

This is the sixth consecutive cut in the price of money, the third in 2025, accumulating a total of 175 basis points of adjustment since June 2024. The measure, unanimously adopted by the Governing Council, responds to the favorable evolution of inflation and the growing uncertainty stemming from the U.S.-driven trade war, which threatens to slow economic growth in the euro zone.

The ECB has also adjusted the main refinancing operations (OPF) to 2.4% and the overnight credit facility to 2.65%. ECB President Christine Lagarde stressed at the press conference afterwards that the decision to cut rates by a quarter point was unanimous, and clarified that "no one spoke in favor of a 0.5-point cut." Lagarde stressed that, after seven cuts since June 2024, the ECB's monetary policy is no longer restrictive.

The rate cut is based on the ongoing process of disinflation in the euro zone. According to the ECB statement, headline and core inflation declined in March 2025.

The year-on-year inflation rate came in at 2.2%, down one-tenth of a percent from February's 2.3%, marking the smallest price increase since November 2024. Core inflation, excluding energy, reached 2.5% in March, also a tenth below the previous month.

The ECB noted that most indicators point tounderlying inflation remaining close to the 2% target over the medium term, a commitment the agency reaffirms in a context of "exceptional uncertainty" due to trade tensions.

The ECB also notes a slowdown in wage growth, while corporate profits are partially mitigating the impact of wage hikes, which remain elevated, on inflation. These factors have contributed to the decision to continue easing monetary policy.

Tariff war, a threat to the European economy

The ECB is keeping a special focus on the trade war unleashed by U.S. policies, which could weigh on economic growth in the eurozone. "Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions," the agency warned.

The latest data reflects an economic cooling, with euro area GDP growth slowing to 0.2% in Q4 2024, down from 0.4% in the previous quarter.

In this scenario, the ECB seeks to balance support for economic growth with price stability, while navigating a global environment marked by volatility.

The ECB's decision to cut interest rates reflects its commitment to keeping inflation close to 2%, but also highlights the challenges facing the euro zone in the face of an increasingly uncertain global economic outlook.