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ECB cuts rates to 2.25% amid Trump trade war

Politiko 2025-04-17 15:38:26

ECB cuts rates to 2.25% amid Trump trade war

Growth and inflation are expected to slow as ECB bankers brace for the impact of tariffs. The European Central Bank cut its key interest rate by a quarter point to 2.25% as it braces for the economic fallout from the trade war sparked by US President Donald Trump.

Thursday's cut, which brings borrowing costs in the eurozone to their lowest level in more than two years, was widely expected after Trump announced sweeping tariffs on most US trading partners on April 2.

Ahead of the decision, the US president compared the ECB's record of rate cuts to the US Federal Reserve, which kept rates on hold at its last meeting in March. Trump said Fed Chairman Jay Powell, who warned on Wednesday about the impact of tariffs on US growth and inflation, was "always TOO LATE AND WRONG" and "his end will come pretty soon!"

The ECB's cut this week is the seventh since it began cutting the deposit rate last June. Traders expect at least two more quarterly cuts by the end of this year, according to levels implied by swap markets before the decision. The euro was little changed, at $1.136 immediately after the cut.

Trump made a partial U-turn last week, delaying 20% ​​“reciprocal tariffs” on EU goods for 90 days, during which time a 10% rate will apply. But senior central bank officials say his protectionist policies are set to be a negative economic blow to the euro zone.

The ECB is already facing slower growth and lower price pressures. In March, the central bank cut its 2025 growth forecast for the eurozone to 0.9% – the sixth consecutive cut.

Inflation eased last month to 2.2 percent — just above the ECB’s 2 percent target — while services prices rose at their slowest pace in nearly three years. Economists say inflation could be further dampened by a drop in oil prices this month, the euro’s recent appreciation against the dollar and a possible surge in Chinese imports into the eurozone. All three developments are widely seen as consequences of Trump’s trade policy, at least in part.

But rising debt-financed spending in Germany and elsewhere in the Eurozone could push up inflation. / Monitor

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