The European Central Bank (ECB) is expected to lower its key interest rate during its upcoming meeting, with market data from LSEG indicating a near certainty — a 99% chance — of a 25-basis-point reduction. This would bring the ECB’s deposit facility rate down to 2%, half of its 2023 peak of 4%.
The rate cut is being closely watched as it coincides with a more stable inflation rate and weak economic growth across the euro zone. While this rate reduction seems almost certain, questions remain about the ECB’s trajectory for the rest of 2025 amid growing economic uncertainty.
Economic Uncertainty and Trade Policies Complicate ECB’s Rate Cut Decisions Ahead
Although inflation has aligned with the ECB’s 2% target, recent data show persistent sluggishness in economic growth, with euro zone GDP increasing only 0.3% in Q1 of 2025. Broader uncertainties loom, such as the potential economic impact of Donald Trump’s trade policies in the U.S., possible retaliatory tariffs from the EU, and significant fiscal and defense policy shifts within Europe, especially Germany. These variables make it difficult for the ECB to confidently outline a long-term monetary policy path beyond Thursday’s anticipated rate cut.
ECB Poised for Rate Cut as Inflation Stabilizes but Global Trade Uncertainty Clouds Future MovesWhile many economists anticipate further rate cuts later this year, they agree the ECB is unlikely to commit to a defined path. Some, like Jack Allen-Reynolds, suggest another rate cut might come as early as July, especially following Tuesday’s favorable inflation data. Others, like Barclays economists, expect cuts but advise a more cautious approach.
Their projection includes two additional 25-basis-point cuts in September and December, with a pause over the summer. Similarly, BofA Global Research indicated that the ECB has few reasons left not to dip below 2%, but warned that it’s unlikely to explicitly telegraph its intentions due to uncertainties like U.S. tariffs.
How ECB Rate Cuts Affect Different Consumer Borrowing and Savings Products
For European consumers, lower interest rates would primarily influence borrowing and savings costs. The effect varies by financial product — for instance, short-term savings accounts would quickly reflect changes in the ECB’s deposit rate. According to Bas van Geffen from RaboResearch, banks typically adjust the rates they offer on savings shortly after ECB decisions, in line with the policy rate. Therefore, savers might see lower interest returns shortly after a rate cut.
However, long-term financial products such as 10-year fixed-rate mortgages may not respond immediately to the ECB’s decision. These products are influenced not only by the current policy rate but also by expectations of future interest rates. Since markets have been anticipating a rate cut, these expectations are likely already priced in.
Consequently, while consumers may feel some effects of the ECB’s move, the impact on long-term interest rates and borrowing costs might remain muted, at least in the immediate aftermath of this week’s decision.
