London
CNN
—
The European Central Bank cut its main interest rate to 2.25% from 2.5% Thursday, citing worries about rising trade tensions as Donald Trump’s tariffs have sparked a global trade war.
The ECB said in a statement Thursday that, while the eurozone had built up “resilience against global shocks,” the “outlook for growth has deteriorated owing to rising trade tensions.”
“Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions,” the central bank said. “These factors may further weigh on the economic outlook for the euro area.”
The bank is the latest global economic and financial player to warn that tariffs could weigh on economies and hurt everyone from major corporations to regular people. Similar warnings have been issued by the World Trade Organization, US Federal Reserve Chair Jerome Powell and others.
The ECB sets the cost of borrowing for the 20 countries that use the euro. The cut, which was widely expected, is the seventh in the past year.
Inflation in the eurozone has tumbled from the record high reached in late 2022 to 2.2% year-over-year in March, coming within touching distance of the central bank’s 2% target.
Meanwhile, the Trump administration’s tariffs threaten to dampen economic growth around the world.
Similarly, last month, the ECB said the tariffs announced by that point had increased uncertainty over trade policy, prompting it to pencil in lower growth in Europe for this year and next.
Yael Selfin, chief economist at consultancy KPMG, said the ECB might cut rates another three times this year.
“The outfall of the trade disruptions could create a global glut of manufactured goods, which could see goods prices fall into deflationary territory this year,” Selfin added.
This is a developing story and will be updated.