The ECB Lowers Rates by 25 Basis Points: Are Cuts Coming to an End?
The European Central Bank (ECB) has announced its sixth consecutive rate cut, reducing the deposit rate from 2.75% to 2.50%. The main refinancing rate is now 2.65%, while the marginal lending facility drops to 2.90%. According to the ECB, this move makes monetary policy “significantly less restrictive,” but it also raises questions about the future of the Eurozone economy.
Economic Growth and Inflation: Lower Forecasts
Despite the cuts, economic growth forecasts for the Eurozone remain weak. GDP is now projected at 0.9% in 2025, 1.2% in 2026, and 1.3% in 2027. Weak investments and a decline in exports are weighing on future prospects.
At the same time, inflation forecasts have been slightly revised upward, with an expected 2.3% in 2025. The ECB has reiterated that reaching the 2% target will take longer than previously expected, fueling speculation that rate cuts could end soon.
What Are the ECB’s Next Moves?
Following the announcement, financial markets reacted quickly: the euro strengthened, while bond yields initially fell before rising again. The 10-year German government bond yield rose by 5 basis points, indicating that investors are starting to anticipate a pause in ECB rate cuts.
According to Christine Lagarde, the ECB will take a flexible approach, evaluating economic data before making further decisions. However, a pause in April now seems more likely, especially given ongoing trade tensions between Europe and the U.S. and rising defense spending across Europe.
A Pause or More Cuts? Uncertainty Prevails
The possibility of lowering the key interest rate to 2% by summer is still on the table, but it will depend on global economic developments. The introduction of new U.S. tariffs on European imports, particularly cars, could influence future ECB decisions.
For now, policymakers remain committed to a “data-dependent” approach, meaning future rate cuts will be determined by economic data. The risk is that the Eurozone could remain stuck between weak growth and inflation still above target levels.
