The European Central Bank held interest rates steady on Thursday as economic uncertainty persists in the wake of U.S. Donald Trump’s aggressive tariff agenda.
Ahead of the decision, markets had been pricing in an around 99% chance of the ECB’s key deposit facility rate being left at 2% for the second consecutive time. The central bank last cut rates in June, bringing rates further down from last year’s record high of 4%.
“Inflation is currently at around the 2% medium-term target and the Governing Council’s assessment of the inflation outlook is broadly unchanged,” the ECB said in a statement.
The central bank added that it would follow a meeting-by-meeting, data-dependent approach and was not pre-committing to a specific path for interest rates. The ECB offered little indication on the future direction for rates.
Lingering economic uncertainty
The ECB is grappling with global economic uncertainty, despite inflation in the euro zone hovering around the central bank’s 2% target in recent months, and the EU striking a trade agreement with the U.S.
The transatlantic partners agreed to 15% blanket tariffs on EU exports to the U.S. in July, with further details about the framework emerging last month. It addressed some questions for key European sectors like pharmaceuticals.
However, questions remain as some issues — such as provisions for the wine and spirits sector — were left open. Concerns over further tariffs have also grown following Trump’s threat of retaliations against the EU after it hit Alphabet‘s Google with a $3.45 billion antitrust fine.
Fears about the impact tariffs could have on economic growth remain. Growth in the euro zone has remained sluggish even as rates have come down, with the latest figures showing just 0.1% growth in the second quarter after a 0.6% expansion in the previous period.
Further cuts ahead?
The ECB has left the door open for further rate reductions, according to economists and analysts following the interest rate decision.
Based on economic expectations, the central bank “is in no hurry to reduce rates further,” said Thomas Pugh, chief economist at leading audit, tax and consulting firm RSM UK and RSM Ireland.
But, he noted, “the 15% tariff on EU exports to the US along with heightened uncertainty will weigh on demand, potentially leaving the door open to a further rate cut at the end of the year.”
“A combination of a hit to investment and exports, a stronger euro along with cheaper imports from China could dampen growth and inflation by enough to warrant another rate cut later this year,” Pugh explained in a note.
Updated expectations
With the interest rate decision itself being widely anticipated, attention on Thursday focused on ECB President Christine Lagarde’s press conference and the latest projections for inflation and economic growth. The central bank last updated its economic forecasts in June.
“The new ECB staff projections present a picture of inflation similar to that projected in June. They see headline inflation averaging 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027,” the central bank said.
In June, headline inflation was forecast to average 2% this year, 1.6% next year and 2% in 2027.
So called core inflation, which strips out food and energy costs, is expected to average 2.4% this year, unchanged from the previous estimate.
Looking at economic growth, the ECB said that “the economy is projected to grow by 1.2% in 2025, revised up from the 0.9% expected in June.”
The forecast for 2026 was trimmed slightly to 1% growth.
Disclaimer: This news has been automatically collected from the source link above. Our website does not create, edit, or publish the content. All information, statements, and opinions expressed belong solely to the original publisher. We are not responsible or liable for the accuracy, reliability, or completeness of any news, nor for any statements, views, or claims made in the content. All rights remain with the respective source.