Eighth interest rate cut within a year! The European Central Bank lowered rates by 25 basis points as expected, significantly reducing next year's inflation forecast

After the inflation rate fell below 2% and the economy faced tariff threats, the European Central Bank (ECB) cut interest rates for the eighth time in a year.

On Thursday, the ECB announced its latest interest rate decision, lowering the rate by 25 basis points as expected, bringing the deposit facility rate down from 2.25% to 2%, marking the eighth rate cut in a year.

At the same time, the main refinancing rate was lowered from 2.4% to 2.15%, and the marginal lending rate was reduced from 2.65% to 2.4%, all in line with market expectations.

In addition, the ECB maintained its wording on the future interest rate path, stating its determination to ensure that the inflation rate remains consistently stable at 2%, and the Governing Council is ready to adjust all tools.

Regarding tariff impacts, the ECB stated that uncertainty in trade policy will affect investment and exports, and trade escalation will lead to a slowdown in economic growth and inflation.

After the ECB's interest rate decision was announced, the euro against the US dollar (EUR/USD) quickly rose and then fell back, reporting at 1.1416.

Inflation Rate Falls Below 2%, Economy Faces Tariff Threats

Data this week showed that the inflation rate in the eurozone fell to 1.9% in May, marking the first time in eight months that it has dropped below 2%, and the second time since 2021. The economic slowdown is attributed to a slowdown in service price increases and a cooling in wage growth, supporting the view that wage growth will slow after catching up with inflation.

Concerns about the eurozone economy have intensified, with the possibility of a sharp shift in trade policy occurring without warning, which has suppressed investment and delayed household spending.

Currently, most EU export products face a 10% tariff, but if negotiations fail, tariffs could rise to 50% in July. According to CCTV News, the deadline for tariff negotiations between the US and the EU has been extended to July 9.

The ECB stated that if trade tensions are resolved in a moderate manner, economic growth and, to a lesser extent, inflation will be above baseline forecasts. However, trade escalation will lead to a slowdown in economic growth and inflation.

Additionally, the ECB noted that while wage growth remains high, it is continuing to slow, and increased income and a strong job market will drive more spending, with concerns about a tightening financing environment easing somewhat.

Downgraded Economic Growth and Inflation Expectations for Next Year

The ECB has downgraded its economic growth expectations for next year while significantly lowering inflation expectations for this year and next:

Economic Growth: The GDP growth rate for 2025 is expected to be 0.9%, unchanged from previous estimates. The GDP growth rate for 2026 is expected to be 1.1%, down from previous estimates of 1.2%. The GDP growth rate for 2027 is expected to be 1.3%, unchanged from previous estimates.

Inflation: The inflation rate for 2025 is expected to be 2%, down from previous forecasts of 2.3%. The inflation rate for 2026 is expected to be 1.6%, down from previous forecasts of 1.9%. The inflation rate for 2027 is expected to be 2%, unchanged from previous forecasts The core CPI growth rate is expected to be 2.4% in 2025, previously estimated at 2.2%. The core CPI growth rate is expected to be 1.9% in 2026, previously estimated at 2.0%. The core CPI growth rate is expected to be 1.9% in 2027, previously estimated at 1.9%.

Some analysts indicate that the downward revision of the overall inflation forecast for 2026 to 1.6% may be the biggest surprise and the most significant change tonight. This will trigger discussions about the risks of inflation falling below the 2% target and expectations for further interest rate cuts.

After the interest rate announcement, traders increased their expectations for a rate cut by the European Central Bank, anticipating a further reduction of 33 basis points this year. This is equivalent to another 25 basis point cut, with a one-third probability of another reduction. However, the market generally expects the ECB to maintain interest rates in July and to cut rates only in September.

It is worth mentioning that inflation risks still exist, as previous articles pointed out, some European officials are concerned that the upcoming large expenditures by European governments may trigger inflationary pressures