LAST UPDATE | 17 Apr

THE EUROPEAN CENTRAL Bank has cut interest rates for the seventh time in a row to counter worries about economic growth fuelled by President Donald Trump’s tariff onslaught.

The bank said in a statement that “the outlook for growth has deteriorated due to rising trade tensions”.

It cited “exceptional uncertainty” about the future economic situation, saying future rate decisions would be taken on a meeting by meeting basis.

The bank’s move should support economic activity in the 20 countries that use the euro currency by making credit more affordable for consumers and businesses.

The bank’s rate-setting council decided at a meeting in Frankfurt to lower its benchmark rate by a quarter percentage point to 2.25%.

The bank has been steadily cutting rates after raising them sharply to combat an outbreak of inflation from 2022 to 2023.

Now that inflation has fallen, growth worries have taken centre stage. The economy in the 20 countries that use the euro grew a modest 0.2% in the last three months of 2024.

Inflation was 2.2% in March, close to the bank’s target of 2%.

The cut was widely expected by analysts given the sudden shadow cast over the eurozone’s growth outlook by Trump’s April 2 announcement of unexpectedly high tariffs, or import tax, on goods from other countries starting at 10% and ranging as high as 49%.

The European Union faces a 20% tariff.

‘Substantial savings’ for homeowners

Tracker mortgage holders will be the first to benefit from this cut.

For a tracker mortgage customer, today’s 0.25% rate reduction means that for every €100,000 remaining on their mortgage over 10 or 15 years, their repayments will fall by around €13 a month, chairperson of Irish Mortgage Advisors Trevor Grant said.

“The ECB’s decision to cut interest rates for the seventh time in a row improves the chances for homeloan rates to fall below 3% during the summer,” Grant explained.

“This will mark a significant milestone for mortgage borrowers and should lead to substantial savings for homeowners and house-buyers. A number of lenders already offer mortgage rates just above the 3% rate.”

Despite falling ECB rates, Ireland is the fifth most expensive country in the euro zone for mortgages, with Irish homebuyers paying 0.46 percentage points more than the average interest rate on new mortgages across the euro zone, according to a recent Central Bank report.

However, Ireland’s ranking here could improve, Grant said.

“Today’s ECB rate cut could give non-bank lenders more leverage to cut their rates this year because non-bank lenders rely more on wholesale funding than the mainstream banks,” he said.

“Indeed, there is already evidence that this is happening as all lenders have cut their rates in recent months.”

‘Liberation Day’ impact

The uncertainty around Trump’s next move, and the negative impact it could have on growth within Europe, had intensified calls for the ECB to ease borrowing costs further.

Worries over rising prices have faded into the background, as once sky-high inflation rates have drifted back down towards the ECB’s two-percent target.

After making six interest rate cuts since June 2024, the central bank “seemed set for a pause” after its last meeting in March, ING bank analyst Carsten Brzeski said.

But the picture changed significantly since Trump’s announcement of a new round of swingeing tariffs, which he referred to as “Liberation Day”.

Trump imposed 10% tariffs on all imports into the United States.

His decision to suspend even higher tariffs for most countries for 90 days and invitation to key trading partners to cut a deal have done little to quell concerns.

“US tariffs on the EU and many other countries have brought back growth concerns for the eurozone, at least in the nearer term,” Brzeski said.

For the members of the ECB’s governing council meeting in Frankfurt, a pause in rate cutting was “no longer an option”, he said.

‘Trade uncertainty’

Going into the meeting, eurozone policymakers could not be sure what tariff rates would eventually apply to transatlantic trade.

For now, Trump has rowed back on his initial decision to hit all European Union imports with a basic 20% tariff, which could rekindle inflation.

But the White House has also imposed 25% levies on the automotive, steel and aluminium sectors, and opened probes into semiconductors and pharmaceuticals that could lead to more industry-specific tariffs.

“Heightened trade uncertainty and tighter financial conditions” caused by Trump’s announcements have increased the “downside” risk for the eurozone, according to analysts at Italian lender UniCredit.

In that context, another cut to relieve stress on households and businesses and support the economy seemed “straightforward”, the analysts said.

The ramifications of higher US tariffs would “outweigh the positive impulse” given by massive planned spending in the eurozone’s biggest member, Germany, they said.

The incoming government in Berlin led by Friedrich Merz has lined up hundreds of billions of euros in extra cash for defence and infrastructure, providing a boost that could be felt across Europe.