The European Central Bank reduced its key interest rate to 2.5% from 2.75% citing the lower inflation rate. The ECB said that it is on track of bringing inflation down to 2% by the end of the year with Euro area inflation being estimated to go down from 2.3% in 2025, to 1.9% in 2026. The ECB Chief Christine Lagarde said that inflation will keep slowing down as the monetary tightening effects keep their pressure on labour costs and prices.
The ECB Chief also said that economic risks are tilted to the downside, meaning that they are high, and these include the potential introduction new tariffs that could dampen European exports, uncertainty over policies and conflicts, and the war in Ukraine which has an uncertain outcome. Extreme weather events and continued climate change could also rapidly increase food prices again. However, the ECB President said that investment in defence and infrastructure could add to growth while manufacturing still needs to pick up again.
The ECB Chief concluded by saying that the ECB is not predetermined by a particular rate path and it can change its course according to the exigencies and conditions of the time.
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