Frankfurt, Germany – The European Central Bank reduces interest rates on Thursday for the seventh time to counteract concerns about economic growth driven by President Donald Trump’s Tariff attacks.
The bank said in a statement that “the perspective for growth has deteriorated due to the increase in commercial tensions.”
He cited “exceptional uncertainty” on the future economic situation, saying that future rate decisions would be taken in a meeting through the meeting.
The bank’s measure must support economic activity in the 20 countries that use the euro currency by making credit more affordable for consumers and companies.
The bank’s fees setting council decided at a meeting in Frankfurt reduced its reference rate to a percentage point of a quarter to 2.25%. The bank has been constantly reducing the rates after raising them sharply to combat an inflation outbreak from 2022 to 2023.
Now that inflation has fallen, growth concerns have taken the center of the stage. The economy in the 20 countries that use the euro grew a modest 0.2% in the last three months of 2024. Inflation was 2.2% in March, near the bank’s goal of 2%.
Analysts widely expected the cut in the sudden shadow issued on the growth perspective of the Eurozone for the Trump announcement of April 2 of unexpectedly high rates, or import taxes, on the goods of other countries that begin in 10% and extend up to 49%. The European Union faces a 20%rate.
At the Bank’s last meeting on March 6, the president of the ECB, Christine Lagarde, had raised the possibility of an upcoming “pause” in the bank’s rates clippings. But that option was practically eliminated by Trump’s announcement.
The reference point of the bank manages rates throughout the economy. The lowest interest rates make it less expensive to ask for money and buy goods that range from homes to new factory equipment. That supports spending, business investment and hiring.
Trump has suspended tariffs for 90 days, but the possibility of the tariff rate of 20% that has proposed for Europe left economists and in charge of formulating policies worried that the highest costs will weigh commercial activity, and will lead to slower growth or even recession if it carries it out. The United States is the largest commercial partner in Europe with about 4.4 billion euros ($ 5 billion) in goods and services that cross the Atlantic every day in both directions.
As the European Commission says, “the transatlantic commercial relationship is the most important commercial relationship in the world.”
Uncertainty is another factor that could delay the economy, since Trump’s pause for negotiations makes it not clear where the rate rate will be resolved. Companies can stop making decisions if they don’t know what their costs will be.
Berenberg Bank economists think that some of the rates will be negotiated in the mid -year, which ends in about 12%. However, that is still around 10 percentage points higher than the average rates before Trump. In addition to that, there is a separate 25% tariff on cars from all countries that will affect the prominent automotive industry of Europe strongly.
