ECB trims rates: Cuts benchmark rates by 25 bps amid Trump tariff risks; growth path now hinges on trade talks

ECB President Christine Lagarde (AP)

The European Central Bank lowered its key interest rate by 25 basis points on Thursday, citing growing uncertainty from US trade threats and slowing eurozone momentum.In its eighth consecutive rate cut, the ECB reduced its benchmark rate to 2%, down from a recent high of 4%, as policymakers attempt to cushion the eurozone economy from the fallout of renewed trade tensions and sluggish domestic demand.The rate-setting council’s decision, announced at the ECB’s Frankfurt headquarters, comes after US President Donald Trump imposed fresh tariffs on European goods and threatened to raise them sharply in the absence of trade progress. Analysts had widely expected a rate cut, but uncertainty remains over how far the central bank will go in future meetings.According to the Associated Press, ECB President Christine Lagarde told reporters that upcoming monetary policy moves would depend heavily on geopolitical developments and the outcome of ongoing trade negotiations. “A further escalation in global trade tensions and associated uncertainties could lower euro area growth by dampening exports and dragging down investment and consumption,” she said. “By contrast, if trade and geopolitical tensions were resolved swiftly, this could lift sentiment and spur activity.”Lagarde added that higher defence and infrastructure spending, along with productivity-enhancing reforms, could also support growth. European governments have ramped up military procurement in response to Russia’s war in Ukraine, partly amid concerns that the US may be pulling back from its commitment to support Kyiv.Despite Thursday’s move, Lagarde said the ECB was “not committing to a particular rate path,” reflecting the fluid outlook for both inflation and growth.The ECB had previously raised rates in 2021–23 to control a post-pandemic inflation spike exacerbated by the Ukraine conflict. With inflation now at 1.9%, just under its 2% target, the bank sees room to provide stimulus through cheaper credit.At the press conference, Lagarde also dismissed speculation from a Financial Times report that she may exit her role early to lead the World Economic Forum in Davos. “I can very firmly tell you that I have always been, and am, fully determined to deliver on my mission, and I’m determined to complete my term,” she said. “So I regret to tell you that you’re not about to see the back of me.” Her term as ECB president runs until October 31, 2027.Trump’s recent moves have rattled markets and policymakers across the bloc. The US president imposed a 20% tariff on EU goods and later threatened to double it to 50%, citing slow progress in talks with the EU’s executive commission. While both sides have agreed to hold off implementation and retaliation until July 14, the pause may be short-lived if negotiations stall.Separately, Trump this week raised steel tariffs from 25% to 50% for all countries except the UK, intensifying concerns of a broader global trade slowdown.The European Commission has already revised down its 2025 growth forecast for the region to 0.9%, from 1.3%, based on the assumption that the 20% US tariff might be negotiated down to no more than 10%.