ECB cuts rates in April

Easing cycle continues: At its meeting on 17 April, the European Central Bank (ECB) decided to reduce its deposit rate by 25 basis points to 2.25%. It also cut its refinancing rate and its lending rate by the same amount. The decision marked the sixth consecutive interest rate reduction and aligned with market expectations.

Declining inflation and weaker growth prospects prompt rate cut: The Central Bank's decision to lower interest rates was primarily driven by the ongoing disinflation process: Both headline and core inflation declined in March, and most indicators suggest that inflation will stabilize at the Bank’s 2.0% medium-term target on a sustained basis. Additionally, the decision was influenced by concerns over the Euro area's economic growth outlook, which has deteriorated due to rising trade tensions and increased uncertainty affecting household and firm confidence.

ECB to deliver additional cuts: The ECB dropped a statement found in the March communiqué regarding the fact that interest rates are “becoming meaningfully less restrictive”. In a subsequent press conference, ECB President Christine Lagarde said that assessing the level of restrictiveness amid ongoing global uncertainty is not useful, while emphasizing that the ECB stands ready to react to new developments, thus leaving the door open to cut rates if the Euro area needed stimulus to bounce back from potential U.S. tariff shocks. Our Consensus is for the ECB to deliver 50 basis points of cuts by year-end, with a panelist spread of between 0–75 basis points of reductions. The ECB will reconvene on 4–5 June.

Panelist insight: ING’s Carsten Brzeski commented: “Lagarde may not have been as straightforward and explicit as her predecessor Mario Draghi but stressing the ECB’s ‘readiness’ and ‘agility’ was a clear hint that the ECB will not shy away from cutting rates further. […] We are convinced that there are more rate cuts to come. The ECB's sense of urgency has clearly increased. However, everyone should know by now that rate cuts alone will not shield the eurozone economy against the current historic changes and challenges.” Meanwhile, Nomura analysts said: “Markets reacted dovishly in response to the initial statement and press conference, and understandably so. Markets added approximately 10bp of cuts by the end of the press conference relative to prior to the initial statement. […] However, we believe that by July – which is some three months away – we should have sufficient clarity on the European response to US tariffs (countermeasures and support measures), so that the ECB will unlikely need to cut rates below 2.00%. That said, the risks are squarely skewed to more cuts than we forecast.”

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects European interest rate projections for the next ten years from a panel of 24 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable interest rate forecast available for European interest rate.

Download one of our sample reports to visualize what a Consensus Forecast is and see our European interest rate projections.

Want to get access to the full dataset of European interest rate forecasts? Send an email to info@focus-economics.com.