President of the European Central Bank Christine Lagarde said on Thursday that the bank’s interest rate cut reflected growing confidence in the disinflation process towards the 2% target, alongside rising risks to economic growth from escalating trade tensions and tariffs.
The ECB lowered its key deposit facility rate by 25 basis points to 2.25%, with Lagarde confirming that the decision was unanimously supported by the Governing Council.
The central bank also dropped any reference to its stance being “meaningfully restrictive”, signalling a new phase in policy, shaped more than ever by a data-dependent, meeting-by-meeting approach.
“Most indicators of underlying inflation are pointing to a sustained return to our 2% medium-term target,” Lagarde said during her press conference in Frankfurt, citing easing domestic inflation and gradually moderating wages.
Trade tensions alter the ECB risk map
Lagarde made clear that the decision to cut rates was guided by a “twofold rationale”: the first being stronger confidence in the disinflation process, and the second a deterioration in the growth outlook due to “exceptional uncertainty” around trade frictions.
Deutsche Bank’s Mark Wall said ECB hawks dropped the “restrictive” language while acknowledging economic resilience. The emphasis on exceptional uncertainty signals openness to further easing if tariff-related shocks materialise.
“Tariffs represent a negative demand shock,” Lagarde said, adding that while they will likely weigh on growth through weaker exports, investment and consumption, the full impact on inflation “will only become clearer over time”.
She warned that euro area exporters “face new barriers to trade”, and that although the scope remains unclear, disruptions to international commerce and heightened geopolitical uncertainty are already weighing on investments.
Consumer spending may also be impacted, as households hold back amid deteriorating sentiment and financial market tensions, she said.
Lagarde welcomes recent fiscal impulse in Europe
Despite the increasingly fragile external environment, Lagarde said the eurozone economy displayed some resilience in early 2025. She noted that manufacturing activity is stabilising, and the gross domestic product likely grew in the first quarter.
Unemployment fell to 6.1% in February, the lowest level since the euro was introduced.
“A strong labour market, higher real incomes, and the impact of our monetary policy should underpin spending,” Lagarde said.
She also pointed to “important policy initiatives at the national and EU levels” such as defence and infrastructure investment, which she said should “bolster manufacturing”, a trend supported by recent survey data.
“When you inject €800 billion—or close to €1 trillion—into the economy, it’s not a small feat. It’s a significant impulse, and it has a meaningful effect, certainly on growth,” she said.
No rush, just readiness and agility
Lagarde was keen to stress that despite the cut, the ECB remains data-dependent.
“We are not pre-committing to a particular rate path,” she said. “But we are seeing more evidence that inflation will stabilise around our target.”
Looking forward, Lagarde described the ECB’s approach with two key words: “readiness” and “agility”. She said the institution must remain alert to rapid developments and be able to respond flexibly to new shocks.
“It’s not going to be a question of rushing to a particular stance,” she said. “But it will be a question of agility in the face of what we are seeing.”