Euronews: Reasons for ECB insistence on cutting interest rates despite the challenges

Economists expect the European Central Bank to continue its interest rate cut cycle, amid escalating global trade tensions and slowing eurozone economic growth. Markets expect a total cut of 75 basis points by September, bringing the deposit rate down to 1.5%, according to Euronews.

The European Central Bank cut its interest rate by 25 basis points last Thursday, amid global uncertainty due to tariffs, which raised concerns about the eurozone’s growth prospects.

The European channel reported that a wide range of economists expect the European Central Bank to proceed with cutting interest rates in the coming months, while continuing to adopt a flexible monetary policy, in light of the global economic slowdown and ongoing trade tensions.

It added that there is a consensus among economic analysts on the possibility of an additional 75 basis points cut over the next three meetings of the central bank, bringing the deposit rate to 1.5% by September. With the latest 25 basis point cut – the seventh in less than a year – the deposit facility rate (the rate the central bank pays commercial banks for short-term deposits) fell to 2.25%, its lowest level since January 2023, according to Euronews.

Although this move was widely expected, the tone of the Governing Council’s statement and the press conference following the meeting reinforced expectations of further monetary easing, i.e., interest rate cuts.

The channel quoted Jean-Paul Kirke, chief eurozone economist at ABN Amro, as saying that the bank’s statement and press conference were flexible, adding that the inclusion of downside risks, such as trade tensions, weakening financial market sentiment, and geopolitical developments, reflects a growing tendency among policymakers to support economic growth.

Euronews noted that Christine Lagarde, President of the European Central Bank, emphasized that future decisions will depend on the data and will be made on a meeting-by-meeting basis. However, she acknowledged that some Governing Council members had favored keeping interest rates unchanged before the recent escalation in trade tensions. The eventual consensus on the decision indicates a rapid shift in attitudes within the central bank’s leadership.

According to the news channel, financial markets reacted quickly to the central bank’s accommodative monetary policy. Investors now rely on financial instruments known as “overnight swaps” to forecast future interest rate trends, and these instruments currently price in an expected 66 basis points of cuts through the end of 2025, with 22 basis points likely to occur as early as the June meeting.

Carsten Brzeski, head of global macroeconomics at ING, stated that Lagarde’s speech reflected a growing sense of urgency in the face of multiple challenges, including slowing inflation and rising downside risks to growth.

He added that the main challenge facing the European Central Bank remains the exceptional uncertainty, which could prevent it from achieving its desired inflation target. ING Group expects the deposit rate to fall to 1.75% by September.

Euronews also reported that Danske Bank analysts expect further rate cuts, stressing that economic data, particularly those related to inflation and business activity, will determine monetary policy direction in the near future. However, the overall trend remains easing.

These analysts indicated that they continue to expect the European Central Bank to cut interest rates by 25 basis points during the upcoming meetings, bringing the deposit rate to 1.5% by September 2025.

Danske Bank believes that a weak PMI reading in April or May could prompt the bank to accelerate the pace of easing, possibly cutting by 50 basis points at the June meeting.

The news channel explained that despite the decline in inflation in the services sector in recent months, price pressures remain above target, further complicating the shift to a more accommodative monetary policy stance. Euronews also quoted Goldman Sachs economist Sven Jari Stein as describing the European Central Bank’s message on Thursday as “pretty dovish,” noting that officials’ concerns about the weak growth outlook for the eurozone have grown. Goldman Sachs expects the ECB to cut by 25 basis points on June 5, followed by two further cuts in July and September, which would lower the deposit rate to 1.5%, Euronews reported.