ECB Slashes Interest Rates Again: Key Rate Now at 2%
Central Bank lowers important lending rates to 2 percent.
In response to falling inflation and a slowing economy, the European Central Bank (ECB) has made another move to lower interest rates. The ECB Council led by President Christine Lagarde, decided to reduce the key rate by a quarter of a percentage point, taking it down to 2.00%.
This marks the eighth rate cut since the central bank shifted to easing policy in mid-2024. While the decision was not unanimous, with one council member voting against, Lagarde stated that the ECB Council believes the current interest rate level is suitable for the uncertain conditions. The ECB, however, remains vague about its future plans.
Ulrich Reuter, President of the German Savings and Giro Association, sees the ECB's decision as "a clear course" and an "important signal of stabilization." On the other hand, Heiner Herkenhoff, CEO of the German Banking Association, cautions against further easing, arguing that it could drive up inflation and be risky, especially given the uncertainty about the price effects of ongoing trade and tariff conflicts.
A Closer Look at the Current Monetary Policy of the ECB
The ECB's decision to lower interest rates reflects its attempt to revive the struggling eurozone economy and cope with global trade tensions. Inflation had surged due to the aftermath of the Ukraine war but has now fallen to the ECB's target of 2.0%. The economy, however, is experiencing a slowdown, with the eurozone's GDP expected to grow by only 0.9% this year.
The future outlook for the ECB is marked by uncertainty due to the ongoing trade dispute with the US. Companies tend to hold off on investments in such circumstances. However, a bright spot for growth could be the military buildup in Europe, as well as the massive financial package pushed in Germany.
The ECB has adjusted its inflation projections, expecting inflation to average 2.0% in 2025, down from previous specific targets for core inflation. The GDP growth projections are also tempered by concerns about trade tensions. Despite these challenges, the ECB continues to focus on supporting economic growth by reducing borrowing costs. The key rate cut is part of this strategy, aimed at making the economy more resilient to global shocks. Learn more about the ECB's monetary policy strategy
- ECB
- Interest Rate
- Monetary Policy Decisions
- Inflation
- Economic Growth
[1] European Central Bank. (2025). Monetary Policy Decisions
[2] European Commission. (2025).May Forecast for the European Economy
[3] European Central Bank. (2025).Monetary Policy Projections
[4] Financial Times. (2025). ECB cuts rates to 2% amid slowing growth
[5] Reuters. (2025). ECB cuts rates, shifts focus to economic growth
ECB Monetary Policy Strategy
The ECB's monetary policy strategy is aimed at maintaining price stability in the eurozone. It focuses on ensuring that inflation remains close to, but below, 2% over the medium term. Key monetary policy instruments include the key interest rate, the deposit rate, and the policy rate. The ECB uses these instruments to influence money supply, credit conditions, and the exchange rate. Learn more about the ECB's monetary policy instruments
- Monetary Policy Strategy
- Price Stability
- Inflation Rate
- Monetary Policy Instruments
[1] European Central Bank. (2020). Monetary Policy Strategy
The European Central Bank has adjusted its monetary policy to combat slowing economic growth and deal with global trade tensions, which includes lowering the key interest rate as part of a strategy aimed at making the economy more resilient to external shocks. Despite the uncertainty surrounding the US trade dispute, the ECB continues to support economic growth by reducing borrowing costs to maintain price stability and keep inflationclose to, but below, 2% over the medium term.
To achieve this, the ECB employs several monetary policy instruments such as the key interest rate, deposit rate, and policy rate, so as to influence money supply, credit conditions, and the exchange rate. The ECB's business decisions in relation to monetary policy are based on its community policy and employment policy, as well as economic factors such as finance and trade.
