The European Central Bank has kept interest rates on hold, maintaining its main rate at 2% and the deposit rate at 2.15%, despite sluggish growth and looming US tariffs. The decision, widely expected as a pause before further cuts later this year, comes as the eurozone economy shows steady growth with low inflation.
ECB President Christine Lagarde said the eurozone is in a good place and that the cost of living crisis is in the past. However, she noted risks remain tilted to the downside, citing conflicts in the Middle East and Ukraine, and global trade tensions that could dampen exports and drag down investment and consumption.
The ECB has cut rates eight times in the last nine months from a high of 4%. Financial markets expect the next cut in December, with rates held again in September. The pause comes amid threats of US tariffs on EU goods, including a potential 30% tariff, and concerns that China and other countries may dump cheap goods in European markets.
Lagarde said the ECB is well-positioned to wait and see, as inflation is at 2% and projected to stabilise at that level. Wage increases are coming down, and growth has been developing favourably. However, strategists warn that disinflation is entrenched and the eurozone faces a new threat of deflation, which may force more aggressive rate cuts.
The ECB noted that the economy has proven resilient overall but remains exceptionally uncertain, especially due to trade disputes. Surveys show modest output rises despite stagnation in France and Germany, while unemployment and inflation remain low across most eurozone countries.
