ECB drops key interest rates to steady eurozone amid tariff turmoil

LONDON (ICIS)–The European Central Bank (ECB) dropped its key interest rates on Thursday in a bid to stabilize economic activity in the eurozone in the wake of disruption caused by US tariff announcements.

The bank cut its rates by 25 basis points, reducing the deposit facility interest rate to 2.25%. Marginal lending rates dropped from 2.90% to 2.65% and the refinancing rate was settled at 2.40% from 2.65%.

Rates have fallen consecutively throughout the year, as eurozone inflation came back down to 2.2% in March, nearing ECB target levels of 2%.

The prospect of a pause on cuts diminished with the volatility caused on ‘Liberation Day’ on 2 April, when US President Donald Trump’s shift in trade policy defied more moderate expectations.

Global markets were riled by President Trump’s dramatic tariff rollout on around 60 countries, before rescinding many of his retaliatory tariffs for many trading partners, including the eurozone.

Initially, the eurozone had been hit with a 20% tariff and was taking steps to respond in kind, before both sides agreed to a 90-day pause.

The EU remains subject to a 10% baseline tariff, with 25% duties on some automotive parts, steel, and aluminum.

This has left economic sentiment weak, with the euro tracking significant gains over the US dollar in response to the volatility.

Manufacturing has also been hit by the tariffs, with the International Energy Agency (IEA) predicting oil demand growth to fall from 1.03 million barrels/day to 0.73 million barrels/day in 2025, and the World Trade Organization (WTO) expecting global trade to slow by 0.2% year on year.

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