Xinhua
06 Jun 2025

Commenting on the rate cut on Thursday, the ECB President Christine Lagarde said the rates have been cut to levels which put the central bank "in a good position."

FRANKFURT, June 5 (Xinhua) -- The European Central Bank (ECB) on Thursday announced an eighth rate cut, bringing the policy interest rate to the lowest level since December 2022. And the ECB chief has signaled that the central bank is coming to an end of the rate cut cycle.

"IN A GOOD POSITION"

The rate on the deposit facility was brought down to 2 percent and the rates on the main refinancing operations and the marginal lending facility were cut down to 2.15 percent and 2.4 percent, respectively.

In a bid to scale back the restrictive monetary measures, the ECB has lowered interest rates by 200 basis points in total since June 2024.

It marks a major reversal from the aggressive rate hike cycle which added 450 basis points to the interest rates within a period of 14 months with an aim of reining in the stubbornly high inflation in the euro area.

Commenting on the rate cut on Thursday, the ECB President Christine Lagarde said the rates have been cut to levels which put the central bank "in a good position," echoing an ECB interest rates decision statement.

"Most measures of underlying inflation suggest that inflation will settle at around the Governing Council's 2 percent medium-term target on a sustained basis," said the statement.

VICTORY NOT CLAIMED YET

Inflation in the euro area dropped to 1.9 percent in May from 2.2 percent in April, according to data from the EU statistical office.

According to its staff projections in June, the ECB sees inflation in the euro area being 2 percent in 2025, 1.6 percent in 2026 and 2 percent in 2027. The projections for 2025 and 2026 have been revised down by 0.3 percentage points compared with the projections in March.

Elaborating on the projected inflation, Lagarde said that it is all right for inflation to swing around its targeted level of 2 percent, and it is where the central bank wants inflation to be.

With the rate cut on Thursday, Lagarde said, "We are getting to the end of a monetary policy cycle that was responding to compounded shocks ..."

Falling short of claiming a victory in the fight against inflation, Lagarde told the press conference after the Governing Council meeting on Thursday that "there is always another battle."

The ECB has not yet dropped its guard, insisting that it is determined to ensure inflation stabilizes sustainably at its medium-term target.

WAIT-AND-SEE MODE GOES ON

The projected inflation of 1.6 percent in 2026 by the ECB staff has given rise to the suspicion that inflationary pressures are giving way to disinflationary risks in the euro area.

Carsten Brzeski, Global Head of Macro at ING Bank is among the economists who took note of the increase of "risk of inflation undershooting."

Citing the stronger euro and the drop in oil prices as part of the increased disinflationary pressures in the Eurozone, Brzeski said in a note on Thursday that the ECB has got ample room to bring interest rates into neutral territory as inflationary pressures ebb quickly.

"With the risk of inflation undershooting currently increasing, today's rate cut will not be the last."

On the other hand, Joerg Kraemer, Chief Economist of Commerzbank, has warned in a report published at the end of May that the ECB should not lower its policy rates further since inflation risks dominate in the long run.

Sounding a confident note by claiming that the ECB is well-positioned to weather the uncertainties brought about by trade tensions, Lagarde repeated that the ECB will continue to follow its meeting-by-meeting and data-dependent approach to determining the monetary policy.

"The Governing Council is not pre-committing to a particular rate path," the ECB said in its statement.