Disinflation Underway in the Eurozone as Interest Rates Get Cut

On April 17th, the European Central Bank (ECB) announced its decision to lower its three key interest rates by 0.25% (25 basis points) effective from April 23rd, 2025, impacting borrowing costs across the Eurozone as follows:

• Deposit Facility Rate lowered to 2.25%, making it less attractive for banks to hold onto cash and encouraging them to lend it out to businesses and individuals instead.
• Main Refinancing Operations Rate lowered to 2.40%, influencing the interest rates banks offer on loans throughout the economy.
• Marginal Lending Facility Rate lowered to 2.65%. This “emergency” overnight loan rate is for banks needing immediate funds from the ECB.

ECB President Christine Lagarde explained the move, stating that the process of disinflation (slower rising prices) was “well on track”, as domestic inflation has declined since the end of 2024.

Looking forward, she expressed confidence that inflation would eventually settle near the ECB’s target of 2% per year. This expectation relies notably on households and businesses becoming more cautious with spending, driven by increasing global trade tensions, a deteriorated outlook for growth and the resulting economic uncertainty. Other factors expected to help slow inflation include falling global energy prices and an appreciated euro, reducing the cost of imported goods.

As disinflation and uncertainty settle in, Ms. Lagarde emphasised that the ECB won’t commit to a specific path for future decisions. It will continue to monitor incoming economic data and decide on its next steps for interest rates on a “meeting-by-meeting” basis, adjusting its approach based on the latest information, with a focus on making the euro area economy more “productive, competitive and resilient”. This includes completing the Savings and Investment Union to facilitate access to finance and risk capital, and the establishment of a legislative framework for the introduction of the Digital Euro.