ECB Cuts Rates by 25 Basis Points as Inflation Outlook Softens

The European Central Bank (ECB) announced a 25 basis point cut to all three of its key interest rates on June 6, 2025, in a move aimed at supporting the eurozone economy amid easing inflation pressures.

Effective June 11, the deposit facility rate will drop to 2.00%, the main refinancing operations rate to 2.15%, and the marginal lending facility rate to 2.40%. This marks the seventh rate cut in the past 13 months.

Inflation Forecasts Revised Downward

The decision comes in response to updated Eurosystem projections, which show inflation trending closer to the ECB’s 2% medium-term target:

Headline inflation is projected to average 2.0% in 2025, fall to 1.6% in 2026, and return to 2.0% in 2027.
Core inflation (excluding energy and food) is forecast to remain at 2.4% in 2025 and decline to 1.9% in both 2026 and 2027.

These downward revisions are largely attributed to lower energy price assumptions and a stronger euro.

Economic Growth Outlook

The ECB expects modest but steady economic growth:

Real GDP is forecast to grow by 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027.
Short-term risks include ongoing global trade tensions, which could dampen investment and export momentum.
However, these effects are expected to be offset by increased public spending on infrastructure and defense, stable household consumption, and improving financing conditions.

Policy Guidance Remains Data-Dependent

The ECB emphasized that this rate cut does not indicate a fixed trajectory for monetary policy. Future decisions will be made on a meeting-by-meeting basis, guided by evolving economic data, inflation trends, and policy transmission dynamics. Amid continued global uncertainty, the ECB reaffirmed its commitment to maintaining price stability and ensuring smooth financial conditions across the euro area.

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