• The European Central Bank has just made headlines again with its sixth straight interest rate cut.
• This latest move sees key interest rates adjusted: the deposit facility now at 2.25%, the main refinancing operations rate at 2.4%, and the marginal lending facility rate at 2.65%.
• Did you know? The US remains Europe’s largest trade partner – a relationship worth around $5 billion in goods and services every single day!

Following up on the news, today, the European Central Bank (ECB) officially put into action its sixth consecutive interest rate cut. In an attempt to tackle growing economic headwinds in the Eurozone, the ECB has trimmed key rates by 25 basis points. Specifically, the deposit rate is now 2.25%, the main refinancing operations rate is 2.4%, and the marginal lending facility rate sits at 2.65%.

This latest rate cut from the ECB isn’t happening in a vacuum. It arrives amidst growing global trade friction, especially after former US President Donald Trump announced potential new tariffs on imports. Notably, this included a proposed 20% tariff on goods from the European Union. While this has been put on hold for 90 days, European leaders are still concerned about the very real possibility it could still be implemented.

ECB President Christine Lagarde has voiced her concerns, pointing out that these trade tensions pose a significant threat to the Eurozone’s economic growth. She warned of the potential for these issues to negatively impact key areas like exports, investment, and consumer spending. Lagarde specifically used the term a “cloud of uncertainty” hanging over the global economic forecast because of these rising trade barriers.

Interestingly, reports suggest EU officials attempted to defuse the situation by proposing a ‘zero for zero’ deal to Trump. This essentially meant completely removing tariffs on industrial goods, including cars, from both sides. However, Trump reportedly turned down the offer, deeming it not enough.

These discussions are so important because the U.S. isn’t just any trading partner for Europe – it’s their biggest one! To put it in perspective, around $5 billion worth of goods and services cross between them *every single day*.

Why Cut Rates Now?

The ECB isn’t just your average bank; it’s a global powerhouse, standing as one of the largest central banks worldwide with assets around a staggering 7 trillion. Now, despite some good news on the inflation front – it eased to 2.2% in March, getting close to the ECB’s 2% target – economic growth in the Eurozone is still lagging. We only saw a modest 0.2% expansion in the last quarter of 2024.

So, why cut rates now? Essentially through these rate cuts, the ECB is aiming to make borrowing less expensive, hoping to spur more spending and investment across the Eurozone. This move is largely seen as an effort to counteract the potential damage from trade barriers on what is already a delicate economic recovery.

While the ECB isn’t laying out a specific plan for future rate changes, they’re emphasizing a ‘data-dependent approach.’ In simpler terms, they’ll be closely watching economic data to decide their next steps. Many analysts predict that if the current economic picture doesn’t improve, we could see further rate cuts to try and boost the Eurozone economy.

Looking ahead, if the current economic climate persists – or even worsens – don’t be too shocked if we see the ECB announce a seventh consecutive interest rate cut down the line.