European Central Bank Slashes Interest Rates For Third Time As Trump Tariffs Bite

The European Central Bank has cut borrowing costs across the 20-member euro area for the third time this year, reducing its main interest rate to 2.25% amidst growing concerns over economic slowdown and the impact of Donald Trump’s tariffs.

The Frankfurt-based institution implemented a quarter-point reduction in its benchmark deposit rate on Thursday, aligning with City economists’ forecasts. The decisive move aims to counter the bloc’s deteriorating growth prospects and mitigate the effects of recently imposed US border taxes on all EU imports.

The ECB’s governing council highlighted a significant deterioration in the growth outlook, citing escalating trade tensions as a primary concern. The council emphasised that mounting uncertainty would likely diminish both household and business confidence, while volatile market reactions to trade disputes could potentially tighten financing conditions.

Inflation indicators across the eurozone have shown a marked decline, creating room for monetary easing. Services inflation, which had remained persistently high, has notably decreased in recent months. Wage growth moderation has become evident, with companies absorbing increased labour costs through reduced profit margins rather than price hikes.

Market observers anticipate similar rate-cutting measures from other major central banks throughout 2025. The Bank of England is expected to implement three quarter-point reductions, starting in May, primarily responding to uncertainty surrounding tariffs and their negative influence on business and consumer sentiment.

Jerome Powell, Federal Reserve Chair, acknowledged on Wednesday that US tariffs affecting approximately 60 countries would drive up domestic prices and suppress employment levels. His remarks at the Economic Club of Chicago triggered significant market turbulence, as investors grappled with uncertainty over the Fed’s next move.

Recent Eurostat data revealed that eurozone inflation decreased to 2.2% in March from 2.3% in February. Core inflation, excluding volatile elements such as fuel and food prices, demonstrated a more substantial decline, falling from 2.6% to 2.4% during the same period.