The European Central Bank cut interest rates again on Thursday, April 17, amid fears that US President Donald Trump's stop-start tariff announcements could threaten growth across the eurozone. Rate-setters were operating in a context of "exceptional uncertainty" amid rising trade tensions, ECB President Christine Lagarde said at a press conference. Trump's tariffs have increased the risk that growth could slow in the eurozone, while their impact on inflation was "less than clear," Lagarde said. Amid the turmoil, the ECB decided to lower interest rates by a quarter point, the sixth consecutive time it has moved to ease borrowing costs. The cut left the benchmark deposit rate at 2.25%, the lowest it has been since the beginning of 2023.
The ECB has swiftly reduced interest rates since the middle of last year, as inflation has drifted back towards the central bank's target of 2%. Consumer prices rose at a 2.2% clip in March in the eurozone, with the ECB saying the process of inflation coming down was "well on track."
However, Trump's threats to impose tariffs on global imports into the United States had led to a "major escalation" in trade tensions, Lagarde said. The resulting economic uncertainty was "likely to reduce confidence among households and firms," the ECB said, while market tensions would lead to tighter financing conditions.
Going into this week's meeting, ECB policymakers had little idea what tariff rates would, in the end, apply to transatlantic trade. "Global trade tensions and associated uncertainties will likely lower euro area growth," Lagarde said, though the impact was less clear for inflation.
The US president spooked global markets with the unveiling of "Liberation Day" tariffs at the beginning of April, before promptly pausing higher duties for dozens of countries, including those of the European Union, for 90 days. A basic 10% tariff rate on imports into the United States remains in place, and Trump has also imposed 25% levies on the automotive, steel and aluminium sectors. Among the potential effects was the possibility that China, which has faced some of the highest US tariffs, could divert goods to Europe.
Trade tensions had changed observers' focus from investment plans in Germany, the largest member of the eurozone. The incoming government in Berlin, led by Friedrich Merz, has lined up hundreds of billions of euros in extra cash for defence and infrastructure, providing a boost that could be felt across Europe. The increased investments could "bolster manufacturing" and add to growth across the eurozone, Lagarde noted. However, given the geopolitical tensions it was "even more urgent" to forge ahead with fiscal and structural policies that would make the eurozone more "productive, competitive and resilient," she said.
The large number of open questions arising from global trade tensions meant the ECB would have to be more "agile" than ever in responding to developments, she said. "We have to stand ready for the unpredictable," Lagarde said, doubling down on the ECB's "data-dependent and meeting-by-meeting" approach.