The European Central Bank has taken a significant step, cutting its main interest rate to 2%, with its president acknowledging that further cuts might be necessary depending on the global economic trajectory. This marks the eighth quarter-point reduction in a year, signaling the central bank’s preparedness for continued action to bolster flagging eurozone growth.
The 20-member currency bloc has experienced a noticeable slowdown in economic activity, with major economies facing subdued growth and a weak outlook for the coming year. The rate cut is intended to make borrowing more affordable, thereby stimulating investment and consumption across the region.
The ECB’s decision was also prompted by eurozone inflation falling below its 2% target. While acknowledging the negative impact of trade tariffs, the central bank anticipates that increased government spending on defense will provide some economic support. ECB President Christine Lagarde said it was difficult to know whether interest rates would need to fall further during a period of “significant uncertainty” in the global economy, indicating an open mind to future adjustments.