European Central Bank Reduces Interest Rates by 25 Basis Points

The Governing Council of the European Central Bank today decided to reduce the three key ECB interest rates by 25 basis points. Accordingly, the interest rate on the deposit facility will be lowered to 2.25 percent, the rate for main refinancing operations will be reduced to 2.4 percent, and the rate for the marginal lending facility will be decreased to 2.65 percent. The reduction will take effect on Wednesday, April 23, 2025.

As stated in the press release, the decision to lower the deposit facility rate, which the Governing Council uses to guide its monetary policy stance, is based on a new assessment of inflation prospects, the dynamics of core inflation, and the strength of monetary policy transmission.

Disinflation, according to their assessment, is progressing well. Inflation continues to move in line with expert expectations. In March, both overall and core inflation decreased. In recent months, inflation in service prices has also significantly declined. Most measures of core inflation suggest that inflation will stabilize, persistently, at levels around the Governing Council’s medium-term target of two percent.

Recall that, according to Eurostat data, the annual inflation rate in the eurozone in March was 2.2, while the data also showed that inflation in Croatia is among the highest in the eurozone – 4.3 percent according to the harmonized index of consumer prices.

Wage growth, although still elevated, is decreasing, and profits partially neutralize its impact on inflation. The euro area economy has developed some resilience to global shocks, but growth prospects have deteriorated due to increased trade tensions. Due to heightened uncertainty, household and business confidence is likely to decline, and the negative and volatile market response to trade tensions is likely to contribute to tightening financing conditions. These factors could further worsen the economic outlook for the euro area.

– The Governing Council is firmly committed to stabilizing inflation, persistently, at a medium-term target level of two percent. In determining the appropriate monetary policy stance, especially in the current conditions of exceptional uncertainty, a data-driven approach will be applied at each meeting. Indeed, the Governing Council’s decisions on interest rates will depend on its assessment of inflation prospects based on new economic and financial data, the dynamics of core inflation, and the strength of monetary policy transmission. The Governing Council does not pre-commit to a specific rate change dynamic – stated the ECB.