Christine Lagarde, President of the European Central Bank (ECB), and Vice-President Luis de Guindos announced a reduction in the ECB's three key interest rates by 25 basis points during a press conference held on April 17, 2025, in Frankfurt am Main. The decision focused particularly on adjusting the deposit facility rate, guided by updated evaluations of inflation forecasts and monetary policy transmission effectiveness.
The ECB noted that the disinflation process was progressing as expected, with both headline and core inflation alongside services inflation experiencing declines in March. Lagarde emphasized that "most measures of underlying inflation suggest that inflation will settle at around our two per cent medium-term target on a sustained basis." She pointed out that wage growth had moderated somewhat, contributing to this outcome.
The Governing Council's decision reflects concerns over the deteriorating growth outlook amidst rising trade tensions and global uncertainties, which may impact household and business confidence. The ECB remains committed to ensuring that inflation stabilizes at the target rate, adopting a data-dependent and meeting-by-meeting approach to future decisions.
Highlighting sectors of concern, Lagarde mentioned the challenges due to disruptions in international trade and increased geopolitical tensions, including ongoing conflicts involving Russia and in the Middle East. "In the present geopolitical environment, it is even more urgent for fiscal and structural policies to make the euro area economy more productive, competitive and resilient," she stated.
Economic indicators showed mixed results: annual inflation was recorded at 2.2 per cent in March, with decreases in energy prices but slight increases in food prices. The labor market displayed strength, with unemployment dropping to 6.1 per cent in February. However, the ECB acknowledged the potential for escalation in trade tensions to affect growth by weakening investment and consumption.
Financial market volatility has been evident, with a notable drop in equity prices and an increase in corporate bond spreads. Despite these challenges, borrowing costs for firms reflected the impact of past interest rate cuts, though corporate borrowing costs had shown some recent upward pressure. The ECB's bank lending survey indicated slightly tighter credit standards for business loans, with reduced loan demand from firms in the first quarter.
Lagarde underscored the importance of maintaining sustainable public finances within the EU's governance framework, calling for structural reforms and strategic investments. She emphasized the urgent need for speedy adoption of the European Commission's Competitiveness Compass proposals to enhance the region's resilience and economic adaptability.