Today’s decision keeps the ECB deposit rate at 2.0%, its lowest level since October 2022. The ECB has been aggressive in the current easing cycle, trimming rates by a quarter-point over the last seven consecutive meetings. Just over a year ago, the deposit rate stood at 4.5%.
The ECB stayed on the sidelines primarily due lingering uncertainty over US President Trump’s erratic trade policy. The US has yet to reach a trade agreement with the European Union and Trump has threatened to impose a 30% tariff on European imports if a deal isn’t reached by August 1. The EU has made plans for retaliatory tariffs in case there’s no deal, which could trigger further US tariffs and set off a bruising trade war between two of the world’s largest economies. With eurozone inflation hovering close to the ECB’s target of 2%, the central bank is under less pressure to continue cutting rates and will be waiting to see if the US and the EU can reach a deal. If the sides hammer out an agreement, the ECB could resume lowering rates as soon as September.
The ECB rate statement said that inflation was moving “in line” with the Bank’s inflation outlook and that it would not provide guidance with regard to monetary policy, as rate decisions would be made based on economic data. The ECB noted that domestic inflation continues to fall but the economic environment remains “exceptionally uncertain”.
The money markets have priced in at least one more rate cut before the end of the year, and if inflation continues to ease, we could see further cuts as the ECB would like to boost the eurozone economy by providing rate relief.
In the aftermath of the ECB rate decision, the EUR/USD currency pair is up by 0.28% today, trading at 1.1776 at the time of writing. The euro is up this week by 1% and hit a daily high of 1.1788, its highest level since July 7.
Key European stock indices are showing mixed numbers today. The German DAX 40 Index is up 95 points (0.38%) at 24,306. The French CAC 40 Index has declined by 34 points (0.44%) and is at 7815 points.