ECB Cuts by 25BP; Inflation Revised Down to 1.6% in 2026

5 June 2025

By Marta Vilar – FRANKFURT (Econostream) – The European Central Bank’s Governing Council on Thursday decided to cut its key interest rates by 25bp, as widely expected by markets and analysts.

With the cut, the three ECB interest rates, effective from June 11, are at 2.0% for the deposit facility, 2.15% for the main refinancing operations and 2.40% for the marginal lending facility.

‘Under this scenario analysis, a further escalation of trade tensions over the coming months would result in growth and inflation being below the baseline projections’, the ECB said in a press release.

If the outcome of trade tensions turned out to be more positive than expected, economic activity and, ‘to a lesser extent’, inflation would be higher than in the baseline scenario, the document said.

The ECB now projects HICP of 2.0% in 2025, 1.6% in 2026 and 2.0% in 2027, with the measure ex-energy and food at 2.4% in 2025, 1.9% in 2026 and 1.9% in 2027.

‘The downward revisions compared with the March projections, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower assumptions for energy prices and a stronger euro’, said the statement.

Economic growth projections are revised lower in 2026 to 1.1% and are left unchanged at 0.9% for 2025 and 1.3% for 2027.

‘While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term’, the ECB said.