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ECB Cuts Key Rate to Neutral 2.0% in Eighth Reduction, Prepares for July Pause

Lagarde said uncertainties over U.S. tariffs justify maintaining a neutral stance until the ECB’s July policy review

The European Central Bank building, right, in Frankfurt, Germany, pictured in June 2025.
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Dark clouds are seen over the building of the European Central Bank (ECB) before the ECB's monetary policy meeting in Frankfurt, Germany, June 6, 2024. REUTERS/Wolfgang Rattay/File Photo
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Overview

  • The ECB lowered its key deposit rate by 25 basis points to 2.0% on June 5, marking its eighth cut since June 2024.
  • Euro zone inflation fell to 1.9% in May, slipping below the central bank’s 2% target and bolstering the case for easier policy.
  • Investors and conservative policymakers expect the ECB to pause rate reductions at its July meeting to gauge the effects of U.S. tariffs and other headwinds.
  • At 2.0%, the deposit rate sits in what the ECB deems a ‘neutral’ range that neither restricts nor stimulates growth.
  • The Governing Council has signaled that future adjustments will be data-dependent with some analysts forecasting a rate hike in late 2026 if inflation pressures rise.