ECB Implements Eighth Interest Rate Cut Within a Year

On June 5 (Beijing time), the European Central Bank (ECB) convened its June monetary policy meeting and announced a 25 basis point rate cut. The deposit facility rate, main refinancing operations rate, and marginal lending facility rate were lowered to 2.00%, 2.15%, and 2.40%, respectively—aligning with market expectations. This marks the ECB’s eighth rate reduction since it began cutting rates in June 2024.

In its statement, the ECB emphasized its commitment to maintaining inflation around the 2% medium-term target, especially amid elevated levels of uncertainty. It reiterated that future policy decisions will be data-driven and made on a meeting-by-meeting basis, with no predetermined rate path.

The eurozone’s inflation data supported this policy adjustment. According to Eurostat, the Harmonised Index of Consumer Prices (HICP) rose by 1.9% year-on-year in May, down from 2.2% in April—falling below the ECB’s 2% target for the first time this year.

Core HICP, which excludes energy, food, tobacco, and alcohol, dropped from 2.7% in April to 2.3% in May. Additionally, inflation in services declined from 4% to 3.2% over the same period.

Despite the ongoing tariff pressure from the U.S. Trump administration, the eurozone economy remains relatively resilient. The final eurozone Composite Purchasing Managers’ Index (PMI) for May came in at 50.2, slightly above the expansion threshold. However, the services PMI remained subdued at 49.7, below the 50-mark, indicating contraction, despite improving from its preliminary reading.

Trade negotiations between the EU and the U.S. have seen no significant breakthrough. Recently, U.S. President Trump cited national security concerns and domestic industry protection to justify raising tariffs on steel, aluminum, and related products from 25% to 50%.

The EU may consider retaliatory actions in response, potentially intensifying trade tensions and posing further challenges to the eurozone's economic outlook.

During the meeting, the ECB also revised its projections for inflation and GDP growth in the eurozone. Inflation is now expected to average 2% in 2025, 1.6% in 2026, and 2% in 2027. These forecasts for 2025 and 2026 have been revised downward by 0.3 percentage points from March, reflecting lower anticipated energy prices and a stronger euro.

For economic growth, the ECB forecasts real GDP growth of 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027. While near-term trade policy uncertainties are likely to weigh on business investment and exports, increased public spending in areas such as defense and infrastructure is expected to support growth over the medium term.