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The European Central Bank (ECB) announced on Thursday a fresh interest rate cut, lowering its three key rates by 25 basis points in a bid to support the eurozone economy as inflation gradually eases.
The widely expected decision marks the ECB’s second rate cut this year, bringing the deposit facility rate — which guides the broader direction of monetary policy — down to 2.50%. The rates for main refinancing operations and the marginal lending facility will also drop to 2.65% and 2.90%, respectively, starting March 12.
According to the ECB, the move is based on updated assessments of inflation, underlying price pressures, and how effectively monetary policy is filtering through to the economy.
Inflation on Track
Inflation across the eurozone is following the disinflationary path the ECB had anticipated, the bank said, despite energy prices rising more than expected in recent months. Headline inflation is now projected to average 2.3% in 2025, before easing to 1.9% in 2026 and 2.0% in 2027 — aligning with the ECB’s medium-term target of 2%.
Inflation excluding energy and food is also forecast to gradually ease, averaging 2.2% in 2025, 2.0% in 2026, and 1.9% in 2027. However, domestic inflation pressures remain elevated due to delayed wage adjustments following the recent inflation surge.
Economic Growth Remains Sluggish
Despite easing inflation, the eurozone economy is still facing headwinds. The ECB downgraded its growth projections once again, expecting GDP to expand by just 0.9% in 2025, 1.2% in 2026, and 1.3% in 2027.
The weaker outlook reflects falling exports, sluggish investment, and lingering uncertainty over global trade policies. However, the bank expects rising real incomes and the gradual impact of previous rate cuts to help boost demand over time.
Balancing Act
The ECB’s latest move signals a delicate balancing act — lowering borrowing costs to support growth without fueling inflationary pressures.
"The disinflation process is progressing, and inflation is expected to stabilise around our 2% target in the medium term," the ECB said in its statement. "However, domestic price pressures remain high, reflecting continued wage increases."
While further rate cuts could follow in the coming months, the ECB made clear that future decisions will depend on how inflation and economic data evolve.
