European central bank cuts rates by 25 bps as Trump’s tariffs stir Eurozone growth fears

The European Central Bank (ECB) cut interest rates by a quarter-point on Thursday, citing growing risks to eurozone growth from US President Donald Trump’s erratic tariff policy. The move marked the sixth consecutive rate cut by the central bank.
The latest decision brings the ECB’s benchmark deposit rate down to 2.25 percent, its lowest level since early 2023, news agency AFP reported.
Rate cuts have been a part of the ECB’s strategy to steer inflation back toward its two-percent target, and although inflation has shown signs of aligning with that goal, concerns over a deteriorating growth outlook prompted further easing.
“The outlook for growth has deteriorated owing to rising trade tensions,” the ECB noted in a statement, pointing to the potential economic fallout from the US's shifting trade stance.
The bank had initially signalled a pause in its rate-cutting cycle following its March meeting, but Trump’s surprise unveiling of wide-ranging “Liberation Day” tariffs in early April — followed by a sudden 90-day suspension for several countries, including the EU — appeared to have changed the calculus.
'Came as little surprise'
“This cut came as little surprise,” said Carsten Brzeski, analyst at ING Bank. He added that the ECB’s previously “measured” approach now risked “falling behind the curve once again” as uncertainty grows.
Besides a blanket 10 percent tariff on imports into the US, the Trump administration has slapped 25 percent levies on cars, steel, and aluminum — sectors heavily linked to European exports. The White House has also launched probes into semiconductors and pharmaceuticals, raising the specter of further industry-specific tariffs.
Going into Thursday’s meeting, ECB officials were left with no clear sense of what long-term trade conditions would look like for transatlantic commerce. The ECB said it faced “exceptional uncertainty” and would adopt a “data-dependent and meeting-by-meeting” stance going forward.
The current environment is “likely to reduce confidence among households and firms,” the ECB noted, adding that financial conditions could tighten further amid market tensions.
Analysts at UniCredit said that, in this context, another rate cut to alleviate pressure on consumers and businesses was a “straightforward” decision. They added that the negative impact of Trump’s tariff escalation would likely outweigh the positive effect of upcoming stimulus in Germany.
Delayed stimulus, immediate shock
Berlin’s incoming government under Friedrich Merz has announced large-scale fiscal spending for defense and infrastructure. However, economists warn the boost would only materialize in 2026, while the economic shock from trade disruptions would be far more immediate.
On inflation, Robert Greil, strategist at Merck Finck private bank, said US tariffs could lead to “a further decline in inflation in the eurozone,” which stood at 2.2 percent in March — down sharply from the double-digit highs of late 2022.
The strengthening of the euro against the dollar should also help ease import costs, and higher tariffs on Chinese goods could result in cheaper alternatives flowing into Europe, Greil said.
Markets now await ECB President Christine Lagarde's post-announcement remarks for more insight into the bank’s forward guidance. Lagarde has previously indicated the ECB remains prepared to act if Trump’s trade war spills into financial instability.
“The ECB is always ready to use the instruments that it has available,” Lagarde said last week in Warsaw.