The European Central Bank cut interest rates to 2.25 percent, warning that trade tensions were weighing on the economic outlook

Another 25 basis points cut, interest rates fell to a new two-year low

The ECB on Thursday announced a 25 basis point rate cut as expected, cutting the deposit facility rate from 2.5% to 2.25%. This is another major turning point since interest rates reached a high of 4% in the medium term in 2023.

According to LSEG, the market fully reflects the possibility of a rate cut before the decision is announced, with a 94% chance of a 25 basis point rate cut predicted. This also shows that the market has long been wary of the growth prospects of the European economy.

The trade situation deteriorated, and the central bank pressed the "emergency brakes"

One of the important reasons behind the ECB's interest rate cut is the impact of the recent deterioration in global trade relations. Although the tariff conflicts between the United States and many countries have eased, the overall uncertainty remains high, hurting business and household confidence.

In its statement, the central bank made it clear that "the outlook for economic growth has deteriorated due to rising trade tensions." The central bank also warned that continued uncertainty and market volatility could lead to tighter financing conditions, putting pressure on the overall economy.

The market is closely watching Lagarde's talk and future policy path

Next, the market will focus on the press conference of ECB President Christine Lagarde, especially the response to the tariff situation and the future direction of the central bank's policy.

Investors are also watching to see if the ECB adjusts its rhetoric on the "restrictive" nature of monetary policy and may reveal more clues about the "neutral rate." This is a key interest rate level that neither stimulates nor suppresses the economy.

The direction of monetary policy in the next half year will become a key observation point

Although this rate cut was expected by the market, it is more interesting to see whether the central bank has paved the way for looser monetary policy in the future. Julien Lafargue, chief market strategist at Barclays Private Bank, said in a report on Thursday: "More importantly, whether the central bank is prepared to let interest rates fall below the neutral rate and turn into further economic stimulation will be the focus of the market over the next 6 to 12 months."

This article by the European Central Bank cuts interest rates to 2.25%, warning that trade tensions are dragging down the economic outlook first appeared in Chain News ABMedia.