Disinflation process “well underway,” ECB cuts interest rates by another 0.25 percent

Brussels – Inflation is continuing on its downward path, and monetary policies are increasingly helping to contain the cost of living. The conditions are essentially in place for interest rates to be revised, and the governing council of the European Central Bank has cut interest rates by a further 0.25 per cent. As of April 23, therefore, the interest rate on deposits with the central bank will decrease to 2.25 per cent, the rate on the main refinancing operations to 2.4 per cent, and the interest rate on marginal lending operations to 2.65 per cent. With today’s (April 17) interest rate cut, the ECB is cutting the rate for the third time in four months, the seventh since 2024.

In Frankfurt, they see, net of trade tensions triggered by the new U.S. administration’s choices, favourable conditions. First, “the disinflationary process is well underway,” reads the note accompanying the decisions taken. Inflation trends continued to reflect experts’ expectations. More specifically, in March, both overall and core inflation declined, and service inflation also eased markedly in recent months. In sum, “measures of core inflation suggest for the most part that inflation will remain firmly around the 2 per cent target over the medium term.” Hence, the decision to intervene in rates again.

“The decision was unanimous,” assured European Central Bank President Christine Lagarde. The possibility of a more substantial cut of half a point was raised, but it was not deemed appropriate to proceed in this direction. This is because there is no shortage of uncertainty factors. On the contrary, “they have increased.” Looking to the immediate future, “the outlook for expansion has deteriorated due to increasing trade tensions.” This means less consumption and less investment. According to Lagarde, “greater uncertainty is likely to reduce households’ and companies’ confidence, and the adverse and volatile market reaction to trade tensions is likely to lead to a tightening of financing conditions.” All these factors “may further weigh on the economic outlook for the euro area.”

ECB President Christine Lagarde [Frankfurt, 17 April 2025]

In a nutshell, “the economic outlook is clouded by exceptional uncertainty,” acknowledges the ECB President. Never before has it been so important to press ahead with the reform agenda, both at the national and European levels. “Governments should prioritise essential structural reforms that boost growth and strategic investment,” while at the same time “ensuring sustainable public finances, in line with the EU’s economic governance framework,” and therefore in compliance with the new stability pact. As for the twelve-star political agenda, the European Commission’s competitiveness compass for Lagarde “provides a concrete roadmap for action, and its proposals, including on simplification, should be adopted swiftly.”

The defence conundrum

In this mixed context of disinflation well underway and uncertainties linked to trade and geopolitical tensions, there is an additional uncertainty factor that could turn into either an opportunity or a boomerang effect for the EU and its eurozone: defence. Lagarde argues that, on the one hand, “an increase in defence and infrastructure spending would contribute to economic growth“, and, consequently, to positive employment and competitiveness. At the same time, however, caution is needed because “an increase in defence and infrastructure spending could also increase inflation in the medium term”, undermining the progress made so far.

Day by day

“Never before have our decisions been based on available data and taken on a case-by-case basis, as they are now,‘’ Lagarde emphasised. There are many uncertainties, and they are difficult to navigate. In practice, it is also a matter of exercising foresight. “The suspension of tariffs is valid until 14 July; until then, we have to see what happens.” Then, there are elections (in Portugal on May 18) and new governments, with the new German government set to take office in May. “We will have a clearer picture in the coming months,” Lagarde said bluntly.