On Thursday, the European Central Bank made a drop in the rate by a largely expected quarter of a point, reducing its deposit rate to 2% compared to a peak of 4% in mid-2023, and revised its inflation projections down for the year.
In a press release accompanying the decision, the ECB declared that this decision was guided by its latest assessment of inflation prospects, underlying the price dynamics and the continuous force of the transmission of monetary policy.
“Inflation is currently at the medium -term objective of the board of directors in the medium term,” the central bank said in a statement on Thursday.
Preliminary data published earlier this week showed that consumer prices in the euro area increasing by 1.9% in May, down below the BCE 2% target and arriving more than expected.
The 25 -point cup was fully price by markets before the announcement, LSEG data showing a probability of almost 99% of the decision.
Analysts are now watching for advice on future policies adjustments, especially since the BCE balances softer inflation with geopolitical and tax risks in progress.
The new quarterly projections of the European Central Bank (ECB) show that inflation is lower than the target of 2% by 2026, with a forecast of 1.6%.
The updated prospects also indicate slightly lower economic growth for next year compared to previous estimates.
Growth remains lukewarm while geopolitical uncertainty is looming
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Although inflation seems to be under control, the economic recovery of the region remains fragile.
The last Eurostat estimate set GDP growth in the first quarter in the euro zone at 0.3%, reflecting continuous weakness in several sectors.
The ECB’s decision comes in the middle of a backdrop of increasing geopolitical tensions which could complicate the economic trajectory of the region.
In particular, concerns are accelerating on the pricing program of American president Donald Trump, who, according to analysts, could have a significant impact on European exporters, in particular in the steel and automotive sectors.
Although the inflationary impact of the prices remains uncertain, the decision -makers have recognized the risk of reprisal measures of the European Union.
Although currently pending, EU leaders have indicated that they were ready to act if necessary.
At the same time, the proposed increases in defense expenses between the Member States add another layer of uncertainty to the economic prospects, with unclear implications for budgetary stability and investment flows.
The president of the ECB, Christine Lagarde, should develop the broader projections and economic prospects of the Central Bank at a press conference at 2:45 p.m. local time in Frankfurt.
