ECB drops neutral rate

At first glance, ECB President Christine Lagarde avoided any pre-committment at today's press conference.

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Dr. Jörg Krämer

Commerzbank Economic Research

04/17/2025

However, she dropped the frequently discussed concept of the neutral interest rate, which most Council members see as having a lower limit of 2%. In doing so, Lagarde fuelled speculation that the ECB could lower its deposit rate more significantly. In our main scenario, we see two more rate cuts to 1.75%. However, if Trump were to return to higher reciprocal tariffs permanently, a lower deposit rate would be likely.

It was a foregone conclusion that the ECB would lower its deposit rate by 25 basis points to 2.25% today. According to President Christine Lagarde, all Council members voted in favour of 25 basis points; 50 basis points was only mentioned during the debate.

How Lagarde justified today's interest rate cut

ECB President Lagarde justified the interest rate cut primarily on the basis of Trump's tariffs, which are causing great uncertainty. The downside risks for the economy have increased. Lagarde also pointed out that inflation had continued to fall; she emphasised that service prices were no longer rising as quickly. In addition, higher tariffs could reduce inflation in the eurozone, for example if Chinese companies offer the goods they can no longer sell in the USA in the eurozone.

For full text see attached PDF-Version.

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