On Thursday (5.6.2025) the European Central Bank meets again (ECB), while it is likely to proceed to further decrease in interest rate.
If the ECB decides to further relax its monetary policy, the acceptance rate will be reduced, for eighth time, by 25 basis points to 2% from 4% last year in June.
For those who have a floating rate loans, such a development will mean a new relief of their monthly tranche as it will stand down and Euribor.
Although relatively few are the members of the ECB’s Board of Directors who have spoken, directly or indirectly, before Thursday’s meeting, most have shown in the direction of reducing interest rates.
“I believe we will reduce interest rates again in June and then I see a pause (at the July meeting),” Bank of Greece Governor Yiannis Stournaras said in an interview with “Kathimerini”.
At the same wavelength were statements by France’s central bankers, Francois Vilua de Galo, Finland, Olli Rehn and Lithuania, Gardimina Simkos.
Billewash said that there has not yet been normalization of the ECB’s monetary policy and this may appear at the upcoming meeting. Oli Renn noted that if the newer elements and new quarterly forecasts of the Central Bank, which will be presented on Thursday, confirm that inflation (running at a rate of 2.2% in April) was moving at low levels and that the growth of the economy was subdued, ” interest rate. “
Simus believes that inflation will move below the target of 2% of the central bank, due to the euro’s reconstruction, stressing that for this reason it sees a significant chance of reducing interest rates. In fact, he said he was expecting another reduction this year, which could be done in July or later.
On the other hand, two members of the Board of Directors were raised against the reduction of interest rates. of the ECB: Austrian Robert Holcman, who is considered a “hawk” because of his position for hard monetary policy, and German, Isabel Snabel, who is also included in the “hawks”.
Holzmann said that “there is no reason to reduce interest rates in June and July”, adding that a further reduction would probably have no effect on growth, which is due to uncertainty rather than restrictive monetary policy. Snabel noted that the ECB should keep interest rates steadily, because the upheaval in the global economy can lead to new price increases and thus inflation in the medium term.
It should be noted that the two “hawks” had opposed the reduction of interest rates and at the April meeting, but their position was obviously minority.
It is also clear that most ECB officials do not share fears of inflation, on the contrary, they believe it will fall to 2% this year and that it can then be reduced and much lower than that level.
This majority position has recently been expressed by both ECB President Christine Lagarde and its head economist Philip Lain, who is also responsible for proposing the policies of the Central Bank.
Lane said he was sure that inflation would be reduced, referring, inter alia, to the decline in wage increases, while stressing that if inflation is continued, interest rates would continue. Interestingly, it is implied that interest rates can decline up to 1.5%, saying that in order to reduce below this level there should be very negative developments on the front of growth, which is not shown today on the horizon.
There are three key factors that create belief in ECB officials, but also analysts and investors that inflation in the eurozone will continue to decline. All three of these reasons are related to the US president’s tariff policy:
First, the appreciation of the euro against the dollar has reduced the cost of imports and especially raw materials priced in the US currency.
Secondly, the significant reduction in oil prices due to the slowdown of the world economy by the trade war.
Thirdly, the decline in demand due to growth slowdown.
Analysts believe that growth will slow down in the eurozone, as well as around the world and especially in the US, even if President Trump has recalled the duties he has imposed.
And that is why they believe that the ECB will reduce interest rates in June and further to 1.75% this year, with Morgan Stanley seeing the “bottom” to 1.5%.
Source: RES – EIA