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The European Central Bank (ECB) is widely expected to cut interest rates for the seventh time this year on Thursday, aiming to support a weakening eurozone economy hit hard by lingering U.S. tariffs and global market volatility. The move would bring the deposit rate down to 2.25%, a step investors have already priced in.
The ECB has been easing monetary policy as inflation slows and price pressures subside. With growth projections under threat from trade tensions and weak global demand, especially from China, policymakers see further rate cuts as necessary. According to Deutsche Bank, the economic damage from trade uncertainty and reciprocal tariffs now outweighs previous ECB forecasts.
Despite a pause in new tariffs by U.S. President Donald Trump, existing trade barriers and ongoing financial instability continue to weigh on the eurozone. The ECB previously estimated that tariffs could shave 0.5% off GDP, but that may be too optimistic if trade tensions escalate.
Energy prices remain low, the euro has strengthened, and inflation risks falling below the ECB’s 2% target—possibly through most of 2026, according to Morgan Stanley. This gives policymakers added incentive to ease further to meet inflation goals.
Investors will closely watch ECB President Christine Lagarde’s press conference for signals on future policy direction. However, Lagarde is expected to maintain a cautious tone, emphasizing data dependency and uncertainty. She may also face questions about Germany’s anticipated fiscal expansion, which could push inflation higher in the long term and eventually force the ECB to reverse course.
UBS economist Reinhard Cluse predicts the ECB could begin hiking rates again by late 2026, anticipating two 25bps increases to counter inflationary pressures from increased government spending.
