The European Central Bank reduced its key interest rate by 0.25 percentage points to 2.00% on Thursday, marking its eighth rate cut since June 2024. The expected monetary policy decision comes as eurozone inflation dipped to 1.9% in May, falling below the ECB’s 2% target for the first time since September 2024, largely due to declining energy prices and a slowdown in services inflation.

It was an almost unanimous decision, with one governing council member not supporting it, ECB President Christine Lagarde said at the press conference. She did not elaborate on the future rate path.

“Today’s rate cut was all but guaranteed given favorable inflation data released earlier this week, which points to a disinflationary process that remains underway in the eurozone,” said Grant Slade, international economist at Morningstar.

“The statement from the ECB reaffirmed its ‘data-dependent’ approach to determining its policy stance. This reflects uncertainty on the part of the ECB as to whether further vigilance is required to truly win the war on inflation, while also leaving flexibility for further monetary easing should economic conditions amid a trade war warrant.”

The decision comes a day after the ECB and the European Commission gave Bulgaria the green light to join the euro in 2026, making it the single currency bloc’s 21st member after Croatia adopted the single currency in 2023.

“In particular, the decision to lower the deposit facility rate—the rate through which the governing council steers the monetary policy stance—is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission,” Lagarde said.

“Inflation is currently at around the governing council’s 2% medium-term target.”

Lagarde also confirmed that she has no intention of leaving office before the end of her term. Lagarde’s eight-year term as ECB President runs until November 2027.

Changes to Key ECB Interest Rates

The ECB began its rate-cutting cycle in June 2024, paused in July, and resumed its rate changes in September for back-to-back cuts of 0.25 percentage points at every monetary policy meeting.

As of June 11, the three ECB key interest rates will stand at:

• Deposit facility rate: 2.00%  
• Main refinancing rate: 2.15%  
• Marginal lending facility: 2.40%  

The ECB is the first major European Central Bank to make a monetary decision this month. On June 19, the Bank of England and the Swiss National Bank will announce monetary policy decisions. While inflation is still elevated in the UK and the BOE is expected to hold rates, Switzerland is battling deflation, and the SNB is seen cutting its key rate to 0% amid a strong franc and as inflation in May dipped to -0.1%. The US Federal Reserve will announce its monetary decision a day earlier, but is widely expected to hold steady despite mounting pressure from US President Donald Trump.

ECB Revises Inflation Outlook

ECB staff also revised its economic forecasts. Staff now see headline inflation averaging:

• 2.0 in 2025 (compared with 2.3% in its March forecast) 
• 1.6% in 2026 (from 1.9%) 
• 2.0% in 2027 (unchanged from March) 

“The downward revisions compared with the March projections, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower assumptions for energy prices and a stronger euro,” the ECB’s Lagarde said.

ECB staff left their economic growth projections for the eurozone unchanged at:

• 0.9% in 2025 (unchanged from its March forecast) 
• 1.1% in 2026 (from 1.2%) 
• 1.3% in 2027 (unchanged) 

“The unrevised growth projection for 2025 reflects a stronger than expected first quarter combined with weaker prospects for the remainder of the year,” Lagarde said.

“While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term.”

With a gain of 0.3% in the first quarter over the fourth quarter, the eurozone economy expanded faster than expected three months ago, on the back of increased private consumption and front-loaded exports to the US in anticipation of US tariffs.

Manufacturing data also came in stronger than anticipated. Industrial production for the first quarter grew by 4.7%, mainly driven by significant US front-loading of eurozone goods ahead of higher tariffs.

“But even when taking front-loading out of the mix, it looks like eurozone manufacturing has been bottoming out,” said Carsten Brzeski of ING Bank.

“Recent surveys indicate more optimism about future production and better order books. Lower energy prices will surely help the more energy-intensive producers and announced German fiscal stimulus as well as European defense spending have both added to order books and general optimism.”

And after the massive stockpiling during the pandemic, there are signs of destocking.

“Normally, it is the combination of inventory reduction and improving order books that will boost production in the future,” Brzeski said.

Market Pricing Shifts on July Rate Cut

Markets have upped expectations for a July rate cut, now pricing in a 45% chance, up from around 20% just a day earlier. The terminal rate for December has also shifted higher, from 1.58% to 1.63%, reflecting expectations that the ECB may proceed more cautiously with further easing.

Opinions differ among analysts about the ECB’s next move.

“Cooling wage growth and mounting downside risks to activity will keep the ECB in easing mode, yet at 2% policy rate is broadly neutral,” said Mathieu Savary, chief European strategist at BCA Research.

“The governing council will therefore dial back the pace to one 25 basis point cut per quarter through 2025, taking the deposit rate to 1.5 % by year-end.”

Carsten Brzeski of ING Bank said: “As the risk of inflation undershooting target has clearly increased, today’s rate cut will not be the last. Inflationary pressures in the eurozone are receding faster than expected.”

David Zahn, head of European fixed income at Franklin Templeton, expects no more rate cuts this summer.

“Slowing price pressures and softer growth supported today’s move, though the policy stance remains cautious. A pause over summer is very likely as the ECB assesses trade risks and domestic resilience. Longer-term, fiscal rebalancing and external headwinds will shape the policy outlook to a more neutral policy stance.”

Anne Beaudu, deputy head of global aggregate strategies at Amundi, said:

“We are approaching the end of the ECB’s rate-cutting cycle. We are close to neutral, which means there is not much room for further rate cuts. Moreover, given the level of bond yields at the short end of the curve, we believe that the market has largely priced in further cuts.”

When Are the Next ECB Meetings in 2025?

July 24, 2025

Sept. 11, 2025

Oct. 30, 2025

Dec. 18, 2025

Sara Silano and Jocelyn Jovene contributed to this article.

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