The European Central Bank (ECB) has reached a 0.25% reduction in interest rates. As announced by the ECB, the Bank’s Board of Directors at today’s meeting decided to reduce its interest rates by 0.25%. Subsequently, the basic interest rate (acceptance of deposits) is 2.5%. The decision was unanimously taken, however, the governor of the Central Bank of Austria (Robert Holzmann) abstained.

This is the second consecutive reduction in interest rates since the beginning of the year as the ECB had reduced its interest rates on 5 February by 0.25%.

As explained by ECB President Christine Lagarde during a press conference, following this reduction “our monetary policy is now becoming significantly less restrictive, as interest rates reductions make borrowing less expensive for businesses and households”. At the same time there is an increase in loans.

However, the economy is facing continuing challenges, which is reflected in the new ECB for growth, lowering the bar for 2025 to 0.9%, to 1.2% for 2026 and 1.3% for 2027. Continuing weakness of investment, partly derived from the high uncertainty of commercial policy, as well as the wider uncertainty of politics.

It is recalled that according to previous forecasts made by the ECB in December 2024, GDP after an increase of 0.7% in the previous year, estimated that it would increase by 1.1% in 2025, by 1.4% in 2026 and by 1.3% in 2027.

Correspondingly, inflation was projected to decline to 2.1% in 2025 and further decline to 1.9% in 2026 and 2.1% in 2027.

Regarding the target set by the ECB for inflation, he – always with the new forecasts – appears to be achieved in 2026. In particular, it is foreseen that inflation will fall to 2.3% in 2025, 1.9% in 2026 and 2.0% in 2027.

However, in answering questions, Kr. Lagarde has estimated that the increased defense spending on which both Germany and the whole EU seem to have a positive impact on the real economy, further enhancing recovery rates, but are likely to cause inflationary pressure.

In general, however, the risks to economic growth remain down. As the ECB head said an escalation of commercial tensions would reduce the growth of the euro area by weakening exports and weakening the global economy. The ongoing uncertainty about global commercial policies could capture investment. Geopolitical tensions, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, also remain an important source of uncertainty.

In addition, as Kr. Lagarde Increasing friction in world trade add more uncertainty to prospects for inflation in the euro area. A general escalation of commercial tensions could lead to the underestimation of the euro and increased import costs, which would exert ascending pressure on inflation. At the same time, the lowest demand for euro zone exports as a result of higher duties and the recrying of exports to the euro area from countries with surplus production capacity would have a downward pressure on inflation. Geopolitical tensions create bilateral risks to inflation in energy markets, consumer confidence and business investment.

Answering a question about the Russian funds that have been committed to the West and whether their confiscation, Kr. Lagarde pointed out that “frozen funds” are a guarantee of a loan of € 50 billion granted. In any case, the ECB is not involved in such a decision, however, he emphasized that any decision taken should take into account the rules of international law.