🏦🇪🇺Cable FX Macro Weekly Note: ECB June Rate Decision

**As seen in Risk In The Week report 05/30/25, get full access now! cablefxm.co.uk

The ECB lowered its three key interest rates by 25 basis points, effective June 11, 2025. The deposit facility rate, which steers the ECB’s monetary policy stance, was reduced to 2.25%, the main refinancing operations rate to 2.40%, and the marginal lending facility rate to 2.65%, effective from April 23, 2025. This marked the seventh consecutive rate cut since June 2024, bringing rates to their lowest level since late 2022.

ECB staff project headline inflation at 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027, with core inflation (excluding energy and food) at 2.2%, 2.0%, and 1.9% respectively. The ECB noted economic challenges, including weaker exports and sluggish investment due to trade policy uncertainty, projecting eurozone growth at 0.9% in 2025, 1.2% in 2026, and 1.3% in 2027.

The ECB removed language describing monetary policy as "restrictive," signaling it is now "meaningfully less restrictive," which some analysts interpret as a hawkish shift, though markets expect another cut on June 5, 2025, potentially lowering the deposit rate to 2.00%. However, a Reuters poll suggests over 70% of economists anticipate a pause in July due to trade risks and inflation concerns. Strategists at Commerzbank said that the ECB economists are likely to revise their growth and inflation forecasts for 2025 slightly downward. They added that the inflation rate in May – which will be published early next week – is likely to have fallen from 2.2% to 2.0%, and core inflation should also have eased somewhat. Commerzbank expects an additional rate cut from the ECB after a pause, they pencil in a move in September when the board publishes new projections. The desk at UBS thinks the ECB will be quicker, they see a following 25bps rate cut as soon as July. UBS noted that the July ECB meeting will be soon after the 90-day moratorium for tariff measures.