Investing.com - The European Central Bank cut interest rates at latest meeting Thursday, as widely expected, in an attempt to boost the eurozone economy that was struggling even before the expected hit from U.S. tariffs.
The ECB cut its benchmark deposit rate by 25 basis points to 2.25%, the seventh reduction in a year, while the interest rate on its main refinancing operations fell to 2.40% and its marginal lending facility dropped to 2.65%.
The euro area economy has been building up some resilience against global shocks, the central bank said, but the outlook for growth has deteriorated owing to rising trade tensions.
"Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions," the ECB said.
"These factors may further weigh on the economic outlook for the euro area," the ECB said in a statement.
The central bank has estimated that growth across the 20 countries that share the euro currency could fall by a half a percentage point this year if tariffs are imposed, erasing about half the bloc’s expected expansion.
At the same time, the central bank noted that both headline and core inflation declined in March, while services inflation has also eased markedly over recent months.
This suggested that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis.
"The ECB hawks managed to get rid of the ’restrictive’ language and tipped their hat at the economy’s resilience to global shocks – a reference to dynamics like labor hoarding," said analysts at Deutsche Bank, in a note.
"However, the forwarding-looking view on the economy implies an expected shock from tariffs, and the characterisation of ’exceptional’ uncertainty, implies an openness to further monetary easing assuming the trade shock persists and is borne out in the data. We continue to expect another rate cut in June and a terminal rate of 1.5% by year-end," the German bank added.
Markets participants still expect at least two more rate cuts from the ECB this year, as financial market volatility, tariffs and economic uncertainty are all likely to weaken growth and consequently inflation.