European Central Bank maintains interest rates despite apprehensions surrounding US tariffs
The European Central Bank (ECB) has kept interest rates in the eurozone steady at around 2.15% in July 2025, signalling a cautious approach due to ongoing trade tensions with the U.S. and decreasing inflation rates.
In a move that marked a break in the inflation wave that followed the outbreak of the Ukraine war, the ECB held rates steady at 2.15% in July, maintaining the benchmark interest rate after a previous cut from 2.4% earlier in the year. This rate level aligns with the ECB’s inflation target, as the eurozone inflation rate cooled to 2% in June 2025, matching their medium-term target.
However, the ECB remains cautious amid renewed U.S.-EU trade tensions. The U.S. had threatened Brussels with a 30% tariff on EU imports from August 1, leaving only a few days for negotiations. The impact of the imposed and threatened high tariffs on the economy and inflation is difficult to assess. ECB President Christine Lagarde described the current stance as a "wait-and-watch" approach due to this uncertainty.
Forecasts suggest that in the medium term, rates will hold around 2.15% in 2026 and possibly increase slightly to 2.4% by 2027, assuming stable inflation and economic growth. The eurozone economy is expected to grow modestly (+1.2% overall), with inflation predicted to dip further to around 1.6% in 2026. This supports a stable or slightly accommodative monetary policy stance.
The ECB is following a data-dependent, meeting-by-meeting approach, with no immediate plans to raise rates, and possibly considering a rate cut if economic conditions deteriorate due to trade disputes or weakening inflation. Economists fear a rise in inflation if the EU imposes its prepared multi-billion-euro counter-tariffs, while other central bankers, like those from France, have expressed concern that inflation could fall below the ECB’s target.
The ECB's primary goal is stable prices, and it should be cautious about further lowering its interest rates, according to Commerzbank chief economist Jörg Krämer. The deposit rate for banks and savers remains at 2.0%. Many companies in Germany have postponed investment plans due to uncertainty, reflecting the impact of the trade dispute on the economy.
In conclusion, the ECB is maintaining interest rates around 2.15% for now, balancing between stable inflation and the uncertain impact of the U.S.-EU trade dispute. Future adjustments will depend on incoming data about inflation and economic growth.
- The ongoing trade tensions between the U.S. and the EU have prompted the European Central Bank (ECB) to adopt a cautious approach in the finance industry, affecting business decisions and potentially influencing the general-news agenda.
- Amidst the trade disputes, the ECB's monetary policy is closely intertwined with political developments, as the EU hopes to avoid escalating inflation caused by counter-tariffs in the industry sector.
- Analysts in the finance industry are tracking the ECB's decision-making process alongside broader business trends and news, as decisions on interest rates can significantly affect economic growth and inflation rates.
