From Morningstar: 2025-06-05 10:40:00

The European Central Bank lowered its key interest rate to 2.00% on Thursday, the eighth rate cut since June 2024. Eurozone inflation fell below 2% in May for the first time since September 2024 due to declining energy prices and services inflation slowdown. The ECB remains data-dependent for future policy decisions.

Bulgaria was approved to join the euro in 2026, becoming the 21st member. The ECB cut the deposit facility rate based on updated inflation outlook to meet the 2% target. The Bank of England and Swiss National Bank are expected to make monetary policy decisions later in June, with the US Federal Reserve also set to announce its decision.

The ECB revised its inflation and economic growth forecasts, expecting lower energy prices and a stronger euro. Despite trade policy uncertainty affecting business investment and exports, rising government investment is projected to support growth. The eurozone economy expanded faster than expected in the first quarter, driven by increased private consumption and front-loaded exports.

Swap markets have reduced expectations for a July rate cut to roughly 20%, signaling a potential pause after the June cut. Terminal rate expectations for year-end rose slightly, indicating a shallower easing path. The timing of future rate cuts will depend on the US-EU trade war resolution and increased fiscal spending, particularly in Germany, to boost the eurozone economy later in the year. The ECB is unlikely to lower its deposit rate below 2% unless the US trade war worsens and negatively impacts the economy. Upcoming ECB meetings in 2025 are scheduled for July 24, Sept. 11, Oct. 30, and Dec. 18. The article does not disclose any ownership of mentioned securities. Morningstar’s editorial policies can be found on their website.



Read more at Morningstar: ECB Cuts Interest Rates Amid Below-Target Inflation