In an environment of increased geopolitical uncertainty and significant impacts on households and businesses, the European Central Bank has made yet another interest rates reduction today, Thursday, June 5th.

The ECB’s decision had been discounted by analysts for days.

The ECB made the eighth consecutive decline, placing the basic interest rate at 2.00%.

However, the Central Bank’s subsequent monetary policy remains uncertain and markets are awaiting the statement by Chief Christine Lagarde to make it clear the landscape more regarding the course of interest rates.

What does the ECB announce

The Board of Directors today decided to reduce the ECB’s three main interest rates by 25 basis points. In particular, its decision to reduce the interest rate on the facility of acceptance of deposits – the interest rate by which the Board of Directors gives the direction of monetary policy – is based on its updated evaluation of inflation prospects, the dynamics of underlying inflation and the intensity of the intensity.

Inflation is currently shaping around the medium -term target of the 2% set by the Board of Directors. According to the basic scenario of the new views of the Eurosystem experts, general inflation is estimated to be on average at 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027. The down reviews compared to March projections, by 0.3 percentage of 2025 and 2025. Mostly cases for lower energy prices and stronger euro. Experts expect that inflation without energy and food prices will be on average of 2.4% in 2025 and 1.9% in 2026 and 2027, that is, it will remain in general unchanged since March.

Experts expect that the rate of real GDP growth will be on average of 0.9% in 2025, 1.1% in 2026 and 1.3% in 2027. Non -review of the growth rate in 2025 reflects a stronger than expected first quarter in combination with the wealthy prospects. While the uncertainty surrounding commercial policies is expected to negatively affect business investment and exports, especially in short -term horizon, the rise of public investment in defense and infrastructure will increasingly support the development in the medium term. The rise of real incomes and the strong labor market will allow households to spend more. Along with the most favorable funding conditions, this should enhance the resilience of the economy in global disorders.

In the context of high uncertainty, experts also evaluated some of the mechanisms through which different commercial policies could affect growth and inflation under some alternative scenarios. These scenarios will be published along with the experts’ screenings on the ECB website. As part of this scenario analysis, a further escalation of commercial tensions in the coming months would result in the rate of growth and inflation to be levels lower than the basic scenario. On the contrary, if commercial tensions are diverged with favorable outcome, the growth rate and, to a lesser extent, inflation will be higher than the basic scenario.

Most of the underlying inflation indicates that inflation will stabilize around the medium -term goal of the Board of Directors for 2% on a sustainable basis. The rate of wage rise remains increased, but it is still significantly mitigated and profits partly absorb its impact on inflation. Concerns that increased uncertainty and volatile market reactions to commercial tensions in April would have a restrictive effect on funding have weakened.

The Board of Directors is determined to ensure that inflation will be stabilized in a medium -term goal of 2%. In particular, under the current conditions of exceptional uncertainty, there will be an approach based on the available data and will take decisions from a meeting at a meeting to determine the appropriate direction of monetary policy. The decisions of the Board of Directors on interest rates will be based on the evaluation of the prospects for inflation in the light of incoming economic and financial data, the dynamics of underlying inflation and the intensity with which monetary policy is transmitted. The Board of Directors is not committed in advance for a specific course of interest rates.

Basic interest rates of the ECB

The Board of Directors today decided to reduce the ECB’s three main interest rates by 25 basis points. Consequently, the interest rates of facilitating acceptance of deposits, main refinancing and marginal funding facility will be reduced to 2.00%, 2.15% and 2.40% respectively, with validity from 11 June 2025.

Purchase Purchase (APP) and Extraordinary Purchase Purchase Purchase Program (PEPP)

The PEPP and PEPP portfolios are reduced at a measured and predictable rate, as the Eurosystem no longer reinserts the amounts of capital from the payment of securities at the end.

The Board of Directors is ready to adapt all the means available within the limits of the mandate assigned to it to ensure that inflation is stabilized in a 2% in the medium term and to preserve the smooth functioning of the monetary policy transmission mechanism.

In addition, the Transmission Protection Instrument (TPI) means is available to offset unwanted, naughty market developments that poses a serious threat to transmit monetary policy in all euro zone countries, thereby allowing the Board of Directors to fulfill its efficiency.