The European Central Bank (ECB) is expected to cut interest rates by a further quarter point (0.25 per cent) on Thursday as inflation continues to cool and amid a slowdown in global trade from US tariffs.
ECB chief Christine Lagarde is also expected to face questions about her tenure as head of the bloc’s central bank amid speculation she may cut her term short.
With euro zone inflation now below the bank’s target rate of 2 per cent, Ms Lagarde is likely to highlight the bank’s progress in taming inflation while flagging the elevated risk posed by tariffs, which are likely to delay consumption and investment decisions across the bloc.
Alongside the expected eighth consecutive cut in borrowing costs, ECB policymakers will also unveil the bank’s latest forecasts for consumer prices which are expected to show them at target in the medium term.
Eurostat figures on Tuesday indicated euro zone inflation in May had slowed to 1.9 per cent, below the ECB’s 2 per cent target rate for the first time in eight months.
But the bloc now faces an incoming storm from US tariffs.
Senior officials are hoping the EU can still win an exemption from the higher steel tariffs, which came into effect this week, and from tariffs on nearly all US imports from the EU due to come into force next month.
EU trade commissioner Maroš Šefčovič held a crunch meeting with US trade representative Jamieson Greer on Wednesday.
The ECB has cut interest rates seven times since last June and markets have priced in another reduction this month with wage growth easing, energy prices falling and a strong euro all pointing to softer inflation.
While Ms Lagarde will likely stop short of providing clear forward guidance on rates, a dovish tone in her remarks, combined with a sizeable downgrade in the bank’s 2025 inflation projections, will be interpreted as indicative of at least one more rate cut this year.
Mortgage holders here have benefited from a sequence of ECB rate cuts. According to one estimate, the seven rate cuts since last June means someone who owes €300,000 will be paying approximately €344 a month less than they were 12 months ago.
Over a full year that is a saving of more than €4,100.
“Given falling inflation and subdued economic growth, it’s almost guaranteed that the ECB will cut rates once again on Thursday,” said Daragh Cassidy from price comparison website Bonkers.ie
“This would take the ECB’s key policy rate down to 2 per cent, and the rate off which trackers are priced, down to 2.15 per cent,” he said.
Ms Lagarde is also expected to face scrutiny about her role as head of the ECB amid speculation she may exit early to assume the role of chairwoman at the World Economic Forum (WEF).
According to the Financial Times, WEF founder Klaus Schwab, who left the forum last month following misconduct allegations that he denies, indicated that practical arrangements were being made for Ms Lagarde to take over the organisation before her tenure at the ECB ends in 2027.
Mr Schwab told the FT that an apartment in the WEF-owned Villa Mundi overlooking Lake Geneva had already been reserved for Ms Lagarde, to give her “somewhere to work as she took on more responsibilities and needed to be here”.
