ECB, new 0.25 per cent cut in interest rates. Lagarde: “Defence will support growth”

Brussels – Inflation is currently around the 2 per cent target in the medium term, and will remain there. Specifically, the cost-of-living index would average 2 per cent in 2025, 1.6 per cent in 2026 and 2 per cent in 2027, a reason for further monetary policy easing. The European Central Bank decided on a new interest rate cut of 0.25 per cent. This is the eighth adjustment since 2024, the fourth since the beginning of 2025, which will mean that from 11 June the interest rate on deposits at the central bank will stand at 2 per cent, the rate on the main refinancing operations will fall to 2.15 per cent, and the rate on the marginal lending operations will be reduced to 2.40 per cent.

The decision was taken “almost unanimously, with only one member against”, reveals the ECB president, Christine Lagarde, who reiterates that the Frankfurt institution “is not bound to a particular path on rates” and that decisions will continue to be taken “on a case-by-case basis, based on the data available.” The available data suggest that net of falling energy prices, which push down inflation, inflation itself will average 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027. There are, therefore, the conditions for further easing. “Our decisions are based on updated inflation data and the transmission strength of our monetary policy“. More: a renewed ‘strength of the euro’ as a currency also plays a role.

What the interest rate cut means and implies

Lagarde emphasises that geopolitical tensions and US tariffs pose risks to price stability. However, she points out, although “trade policy uncertainty is expected to weigh on business investment and exports, especially in the short term, increased public investment in defence and infrastructure will increasingly support growth in the medium term“. In addition, rising real incomes and a robust labour market will enable households to spend more, supporting consumption and domestic supply. Frankfurt points out that “Together with more favourable financing conditions, this should increase the economy’s resilience to global shocks.”

Lagarde thus returns to insist on the need for supporting the defence industry as a means of strengthening the single currency, but at the same time renews the call to governments for reforms. “Given the context of great uncertainty, it is more urgent than ever to implement structural and fiscal policies to make the eurozone more productive, more competitive, and more resilient” to challenges and shocks. Translated: focus on public accounts. Because, specifies the ECB president, “the macro-prudential policy remains the first line of defence against the build-up of financial vulnerabilities, strengthening resilience and preserving the macro-prudential space”.

Possible breaks

Lagarde does not elaborate on the next moves and decisions, but hints that at the next meeting (24 July), there might be an option to leave things unchanged, with the values starting on 11 June. “I believe that now we are well-positioned to navigate the waters in the coming months,” she says in response to a specific question. The reply does not suggest that the current level of interest rates is such that it is appropriate to leave it untouched until the end of the summer break, with possible new cuts reserved for the September meeting.

Lagarde and her future: “Determined to complete the mandate”

The traditional press conference at the end of the meeting is an opportunity for the ECB president to clarify her future and deny rumours about her alleged intention to leave the EU institution early: “I have always been determined to complete my mandate.” Onwards for all eight years then, until 31 October 2027