Instant View: ECB cuts rates again to buffer economy from U.S. tariff hit

Reuters

Thu, Apr 17, 2025, 5:52 AM 5 min read

LONDON (Reuters) - The European Central Bank cut interest rates for the seventh time in a year on Thursday, looking to prop up an already struggling euro zone economy that will take a knock from U.S. tariffs.

Policymakers were unanimous in approving the cut on Thursday, as even some of the more hawkish rate setters agreed that a global trade war has significantly altered the outlook, a source told Reuters.

The euro extended falls after the decision and was last trading at $1.1339, down 0.5% on the day, having traded at $1.1367 just before.

Germany's 2-year bond yield was last flat at 1.75%, having traded around 1.807% earlier.Europe's broad STOXX 600 index was down 0.3%, holding lower on the day.

COMMENTS:

ANDREW KENNINGHAM, CHIEF EUROPE ECONOMIST AT CAPITAL ECONOMICS:

"While the ECB’s decision to cut its deposit rate from 2.5% to 2.25% today was expected, the monetary policy statement clearly points to further policy easing to come. The statement says the outlook for growth has “deteriorated” due to “rising trade tensions”. And it notes that “increased uncertainty is likely to reduce confidence among households and firms” and the market response to the trade tensions “is likely to have a tightening impact on financing conditions”. So all else equal, the ECB believes monetary policy will need to be more accommodative than previously expected."

STEVE RYDER, SENIOR PORTFOLIO MANAGER, AVIVA INVESTORS:

"Little over three weeks ago the market was questioning whether the ECB would skip an April rate cut, today as now widely expected the ECB delivered a 25 bps reduction. U.S. tariffs have increased risks to global growth which has also put downward pressure on commodity prices and upward pressure on the Euro. These factors are now weighing on inflation expectations. Whilst the outlook for the EU area remains highly uncertain, we believe it's correct for the ECB to take policy rates into the neutral range band and the removal of the restrictive stance and a more data dependent approach is an acknowledgment of these increased risks.

Our view has been that the balance of risks to policy rates remain to the downside, this is however now well priced by markets and so we are now neutral on European rates. In the medium term we see several supportive factors for the Euro area which we believe support steeper yield curves."

DEAN TURNER, CHIEF EURO ZONE ECONOMIST AT UBS GLOBAL WEALTH MANAGEMENT, LONDON:

"Policymakers are seeking to strike a balance between dovish impulses—such as concerns over growth, inflation, and ongoing trade conflicts—and more hawkish developments, particularly in relation to fiscal policy, notably from Germany.