The European Central Bank (ECB) has reduced its benchmark interest rate by a quarter point to 2.5%, marking its sixth rate cut since June, as inflation approaches 2% and economic growth remains sluggish.
The rate cuts, which were anticipated by analysts, were announced during the ECB’s March meeting on Thursday. The interest rates on the deposit facility, main refinancing operations, and marginal lending facility will be lowered to 2.50%, 2.65%, and 2.90%, respectively, effective from March 12, 2025.
The main refinancing operations rate represents the interest banks pay when borrowing money from the ECB for one week, while the deposit facility rate is what banks earn for overnight deposits with the Eurosystem. The marginal lending facility provides overnight credit to banks from the Eurosystem.
The ECB noted in its statement, “Monetary policy is becoming meaningfully less restrictive, as the interest rate cuts are making new borrowing less expensive for firms and households and loan growth is picking up.”
However, the ECB also highlighted that past interest rate hikes are still impacting credit stock, and overall lending remains subdued. The central bank revised its economic growth projections, forecasting 0.9% growth for 2025, 1.2% for 2026, and 1.3% for 2027.
The decision follows a slight cooling in inflation, which dropped to 2.4% in the eurozone in February, slightly above the anticipated 2.3%. However, services inflation drove the increase, rising 3.7% year-on-year. Monthly consumer prices also rose by 0.5% from January, the highest monthly increase since April 2024.
Looking ahead, potential trade tensions with the U.S. could add to inflationary pressures. U.S. President Donald Trump has threatened a 25% tariff on EU imports, with the European Union warning of retaliatory levies.
