The European Central Bank lowers interest rates as scheduled by 25 basis points, stating that monetary policy has "clearly loosened restrictions."

The European Central Bank lowered the deposit rate by 25 basis points to 2.5% on Thursday, in line with market expectations. The ECB also changed the wording in its statement, saying that the "restrictiveness of monetary policy is clearly weakening". The ECB stated in its announcement on Thursday: "As the rate cut reduces the cost of new loans for businesses and households, loan growth is picking up and the restrictiveness of monetary policy is clearly weakening." This is different from the ECB's comments in January when the ECB still described its monetary policy stance as restrictive. The ECB has cut interest rates six times in the past nine months due to weak economic growth in the region and increased concerns about EU import tariffs from the US. The overall inflation rate in the eurozone remains below 3%, despite a slight increase in the last few months of 2024. Data released earlier this week showed that the inflation rate in the eurozone in February dropped to 2.4%, lower than in January but slightly higher than market expectations. Core inflation and service inflation also declined after several months of resilience. The ECB reiterated on Thursday that progress against inflation is "smooth", but pointed out that the inflation rate is still "elevated". The ECB added, "Most potential inflation indicators suggest that the inflation rate will remain stable around the 2% target set by the Governing Council in the medium term." Uncertainty over tariffs As the ECB announced its rate decision, US President Donald Trump is pursuing an aggressive global tariff policy, while European leaders are looking to increase defense spending. The US has not yet announced tariffs on goods imported from Europe, but Trump has repeatedly threatened to impose tariffs. It is currently unclear the scope of such tariffs, and negotiations are still possible. As relations between the US and Ukraine deteriorate, European countries are also seeking to increase defense and security budgets. An increase in defense spending could affect key economic indicators such as inflation and economic growth. Analysts believe that these geopolitical developments could lead to divisions among the ECB's Governing Council in the future monetary policy decisions in the coming months. ECB officials are divided on issues such as the position of the so-called "neutral rate", and whether interest rates need to be below the neutral rate to help stimulate economic expansion.