ECB Implements Eighth Consecutive Rate Cut to Support Eurozone Economy
On June 5, 2025, the European Central Bank (ECB) announced its eighth consecutive interest rate reduction, marking a significant monetary policy shift. With this decision, the ECB cuts rates by 25 basis points, bringing the deposit facility rate down to 2%. The move aims to bolster the eurozone economy amid easing inflation and ongoing global trade uncertainties. Policymakers signal a data-driven approach going forward as inflation trends downward and economic momentum remains fragile.
The decision reflects the ECB’s response to a decline in eurozone inflation, which fell to 1.9% in May, below the central bank’s 2% target. The rate cut is part of a broader strategy to stimulate economic growth and ensure price stability across the 20-member eurozone.
Revised Economic Projections Highlight Cautious Optimism
European Central Bank President Christine Lagarde speaks to reporters after the ECB’s Governing Council meeting © Reuters
Alongside the rate cut, the ECB released updated economic projections. Headline inflation is now expected to average 2.0% in 2025, 1.6% in 2026, and return to 2.0% in 2027. These revisions indicate a cautious optimism about the eurozone’s economic trajectory, with the ECB aiming to maintain inflation close to its target over the medium term.
Real GDP growth projections have been adjusted slightly, with expectations of 0.9% growth in 2025, 1.1% in 2026, and 1.3% in 2027. The ECB acknowledges that while the economy shows signs of resilience, challenges such as global trade tensions and geopolitical uncertainties continue to pose risks.
Lagarde Reaffirms Commitment to ECB Amid WEF Leadership Speculation
During the press conference following the rate decision, ECB President Christine Lagarde addressed rumors about her potential early departure to lead the World Economic Forum (WEF). She firmly dismissed these speculations, stating, “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.”
Lagarde’s statement comes in response to reports suggesting that she had discussed succeeding Klaus Schwab as WEF chair. Schwab resigned in April 2025 amid allegations of misconduct, which he denies. Despite these discussions, Lagarde emphasized her commitment to the ECB, aiming to serve her full term, which concludes in October 2027.
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Market Reactions and Future Monetary Policy Outlook
The ECB’s rate cut has widened the interest rate gap between the eurozone and other major economies, notably the United States, where the Federal Reserve has maintained higher rates. This divergence reflects differing economic conditions and policy responses, with the ECB focusing on stimulating growth amid subdued inflation.
Looking ahead, the ECB signaled a potential pause in rate cuts, adopting a data-dependent approach. Lagarde emphasized that future decisions would be made on a meeting-by-meeting basis, considering incoming economic and financial data.
Conclusion
The ECB’s recent rate cut underscores its commitment to supporting the eurozone economy amid evolving challenges. President Lagarde’s reaffirmation of her dedication to completing her term provides stability and continuity in the ECB’s leadership. As the global economic landscape continues to shift, the ECB remains vigilant, ready to adjust its policies to maintain price stability and foster sustainable growth.
