ECB key interest rates are falling: experts name three decisive reasons!

ECB key interest rates are falling: experts name three decisive reasons!

The European Central Bank (ECB) is preparing for a significant interest rate cut as the economic situation in the Eurozone continues to evolve. The ECB Governing Council will meet next Thursday and Robert Greil, chief strategist at Merck Finck, expects a reduction in key interest rates. This forecast is based on a declining inflation trend, which saw a decline in May to close to 2% from 2.2% in April. Loud focus.de There are three main factors that support this decision: the ongoing decline in inflation, subdued economic growth in the euro area and the threat of US tariffs, which are leading to further uncertainty.

May inflation data and April labor market data will be released on Tuesday, followed by producer prices on Thursday. Retail sales for April and economic growth figures for the first quarter are on the agenda for Friday. In the USA, the final purchasing managers' indices for the manufacturing and services sectors will be available on Monday and Wednesday. The labor market report for May and US industrial orders will also be an important part of the coming week.

Current interest rate developments

As early as March 12, 2025, the ECB Council lowered the three key interest rates by 25 basis points each. The interest rates for the deposit facility, the main refinancing operations and the marginal lending facility are now 2.50%, 2.65% and 2.90%. This cut reflects an updated assessment of the inflation outlook and the ECB sees progress in the disinflation process. The bundesbank.de records headline inflation of 2.3% for 2025 and future estimates of 1.9% for 2026 and 2.0% for 2027.

Most measures of underlying inflation show stabilization around the 2% target. Nevertheless, domestic inflation remains high as wages and prices adjust with a delay. Despite a forecast for falling wage growth, the impact on inflation remains muted. Borrowing is becoming easier, although lending remains subdued due to previous interest rate increases.

Growth prospects and conclusion

Growth forecasts were also cut, with expected growth of 0.9% for 2025 and moderate increases of 1.2% for 2026 and 1.3% for 2027. These revisions reflect lower exports and weak investment. Still, there are signs of rising real incomes and waning effects of early interest rate hikes that could support demand. The Governing Council continues to aim for a sustained stabilization of inflation at 2%, with interest rate decisions based on current economic and financial data and the inflation outlook.