Frankfurt April 17 2025: European central bank cut interest rates for the seventh time in a year to 2.25%.
It has taken borrowing costs to their lowest level since late 2022 as the sharp post-pandemic inflation spike has eased, and the fast-moving changes to trade policies bolster the case for further concern.
“The economic outlook is clouded by exceptional uncertainty,” ECB President Lagarde said at a press conference.
The bank’s statement warned the situation could weigh on the euro zone economy although it removed a reference to interest rates being “restrictive” – a phrase viewed as shorthand for further rate cuts ahead.
Lagarde said that with so much up in the air the bank needed to stay firmly in the mode of making decisions on a meeting-by-meeting basis.
“It will be a question of agility in the face of what we are seeing,” she said. “More than ever now we need to be data-dependent.”
Lagarde said the ECB would not have full clarity by its next meeting in early June as that was before the 90-day freeze Trump has put on his tariffs – which were set at 20% for the European Union – elapses.
TARIFF HIT
Lagarde said last month the ECB estimated that growth across the 20 countries that share the euro could fall by half a percentage point if the United States imposes a 25% tariff on EU imports and the bloc retaliates.
But that estimate has been seen as too optimistic, particularly if a trade war wreaks havoc with investor, business and consumer confidence.
While the ECB expected a trade war to increase inflation by 50 basis points, the turmoil caused by erratic U.S. trade policy could equally detract from it.
Nearly all financial indicators impacting prices have shifted dramatically in recent weeks.
“I cannot tell you if we are at peak uncertainty,” Lagarde said. “We have to stand ready for the unpredictable.”
