The main interest rate in the Eurozone remains at 2 percent. The European Central Bank (ECB) is taking this rate pause due to uncertainty about the impact of US import tariffs. With the same interest rate, the economy is neither hampered nor stimulated.
Economists had already expected the ECB to hold a rate pause. At the previous interest rate decision in June, ECB President Christine Lagarde announced that there might be a stop to all interest rate cuts. “We are approaching the end,” she said at the time. “We continue to analyze, measure and assess now.”
Not only Lagarde, but also other ECB directors have hinted at a rate pause in recent weeks. According to them, this would be “appropriate” due to all the uncertainty surrounding the consequences of the US import tariffs on the European economy. These were announced by President Donald Trump in early April.
According to Joachim Nagel, the president of the German Bundesbank, the rate is now at a “neutral” level at 2 percent. Then the European economy is neither further stimulated nor hampered.
The rate pause is not only introduced because of the global economic tensions, but also because inflation is lower than last year. In addition, wages are rising less quickly, the ECB writes in an explanation on Thursday.
Last year eight interest rate cuts
In June, the ECB lowered interest rates by a quarter of a percentage point to support the ailing economy. That was the eighth interest rate cut since June last year.
A lower interest rate makes it cheaper for banks to borrow money or make investments. Mortgage rates can also fall, while savings rates go down and saving therefore yields less. In short: the central bank wanted to stimulate spending money.
The interest rate cuts were possible because inflation in the Eurozone has cooled down considerably over the past year. In June, inflation fell to 2 percent. That percentage is in line with the ECB’s objective.
The next ECB interest rate meeting is on September 11. Many economists think there will be one last cut then.