The European Central Bank (ECB) has maintained its key interest rates unchanged, leaving the deposit rate at 2.0%, the main refinancing rate at 2.15%, and the marginal lending rate at 2.40%. This decision halts a sequence of eight consecutive rate cuts initiated in June 2024.
In its policy statement, the ECB noted the eurozone economy has “so far shown overall good resilience in a difficult global context,” while cautioning that “the outlook remains exceptionally uncertain, particularly due to trade disputes.” The bank explicitly referenced ongoing tariff negotiations with the United States.
ECB President Christine Lagarde stated the euro area is headed toward a “moderate expansion” following strong Q1 growth but faces “downside risks.” She emphasized that tariff-related “uncertainty is making businesses cautious about investments.”
Lagarde addressed market speculation about a potential 15% tariff agreement with the U.S., acknowledging awareness of “conjectures about where we are heading.” The ECB remains “attentive” to developments but continues to base policy on its June baseline forecast, which projects 10% tariffs over a three-year horizon. This scenario forecasts eurozone growth of 0.8% in 2024, 0.9% in 2025, and 1.1% in 2027.
“We operate based on our forecasting work,” Lagarde told reporters, declining to validate the 15% rumor. “For now, the baseline scenario stands confirmed by recent data. We take things step by step.”
Following Lagarde’s remarks, investor expectations for another rate cut diminished sharply. Markets now price a less than 30% probability of a September reduction via OIS derivatives, down from 40% before her press conference. The likelihood of a December cut stands at 36.8%.
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