ECB cuts key interest rates by 25 bps as inflation nears target

This marks the first rate cut in the current cycle, with the Governing Council citing improved inflation dynamics and effective monetary transmission. Inflation is now near the ECB’s medium-term target of 2 per cent, with headline inflation projected at 2 per cent in 2025 and 1.6 per cent in 2026. Core inflation, excluding food and energy, is forecast at 2.4 per cent in 2025 and 1.9 per cent in the following two years, the Governing Council said in a statement.

The ECB also expects real GDP growth to average 0.9 per cent in 2025, supported by strong Q1 activity, rising government investment, and a resilient labour market. However, global trade tensions and policy uncertainty may weigh on investment and exports.

“Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2 per cent medium-term target on a sustained basis. Wage growth is still elevated but continues to moderate visibly, and profits are partially buffering its impact on inflation. The concerns that increased uncertainty and a volatile market response to the trade tensions in April would have a tightening impact on financing conditions have eased,” the statement added.

Despite cutting rates, the ECB maintained a cautious stance, signalling a meeting-by-meeting, data-driven approach, with no pre-commitment to a specific rate path.

ALCHEMPro News Desk (KD)