ECB Cuts Interest Rates By 25 Bps Again Despite 'Exceptional Uncertainty'

(RTTNews) - The European Central Bank slashed its key interest rates by a quarter basis point on Thursday, as expected, as policymakers assessed that disinflation remains on track but acknowledged that the significant uncertainty due to the escalation in the tariff war is going to hurt the Eurozone economic outlook.

The Governing Council, led by ECB President Christine Lagarde, cut the deposit rate by 25 basis points to 2.25 percent. The central bank lowered interest rates for the sixth policy session in a row.

The main refinancing rate was lowered by similar volume to 2.40 percent and the marginal lending rate to 2.65 percent.

The ECB has lowered interest rates by a quarter basis points each in every rate-setting session since September.

"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," the ECB said.

"The euro area economy has been building up some resilience against global shocks, but the outlook for growth has deteriorated owing to rising trade tensions," the bank added.

The ECB observed that increased uncertainty is likely to hurt confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions. The bank expects these factors to further weigh on the economic outlook for the euro area.

"Especially in current conditions of exceptional uncertainty, it will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance," the bank said.

The central bank reiterated that it will not pre-commit to a particular rate path.

ING economist Carsten Brzeski said the latest rate cut was somewhat of a surprise given the escalating trade tensions, unprecedented policy uncertainty and the strengthening of the euro exchange rate. The economist expects more rate cuts in future.

"…to some extent, today's rate cut decision is also an insurance cut," Brzeski said. "An insurance cut Lagarde-style. Today's cut won't do any harm; staying on hold would not only have cast doubt about the ECB's willingness to bolster growth but could also lead to a further and unwarranted strengthening of the euro."