European Central Bank extends rate-cut path in April, slashes 25 basis points

European Central Bank (ECB) announced on Thursday that it reduced all three key interest rates by 25 basis points, pointing out concerns that U.S. President Donald Trump’s shifting tariff policies could hurt eurozone growth.

The deposit rate is lowered to 2.25%, its sixth consecutive cut and the lowest level since early 2023. The move comes as inflation approaches the ECB’s 2% target, but growth concerns persist due to rising trade tensions.

Although the ECB had considered pausing rate cuts after its March meeting, the uncertainty caused by new U.S. tariffs prompted further action. Trump’s policies, including a general 10% tariff and additional 25% levies on autos, steel, and aluminum, have created confusion. Temporary exemptions were granted to some countries, including the E.U., but further tariffs on sectors like pharmaceuticals and semiconductors remain possible.

‘A lot of uncertainties’

Facing “exceptional uncertainty,” the ECB stated it would adjust policy based on economic data and developments at each meeting. Analysts said the rate cut was a logical response to support businesses and households under pressure from market volatility.

While Germany’s upcoming stimulus plan offers long-term hope, it is not expected to take effect before 2026. In the short term, U.S. tariffs are seen as more likely to lower inflation further in the eurozone by reducing prices of imported goods.

Inflation in the euro area stood at 2.2% in March, down from over 10% in late 2022. The stronger euro and redirected cheap exports from China could keep prices low.

Attention now turns to ECB President Christine Lagarde, who has indicated the bank will act if financial stability is threatened, reaffirming the ECB is “always ready to use its tools.”

“The net impact on inflation will only become clear, or clearer… over the course of time,” she said. “There are diverging views… we have of a lot of uncertainties still today,” Lagarde added.