A projected illumination marking the 75th anniversary of the Schuman Declaration, on the Grossmarkthalle building at the European Central Bank headquarters in Frankfurt, Germany, on May 9, 2025.
Alex Kraus/Bloomberg via Getty Images
The European Central Bank is all but guaranteed to trim its key interest rate on Thursday.
Markets were last pricing in an around 99% chance of a 25-basis-point cut, according to LSEG data. That would take the deposit facility rate to 2% — half of the mid-2023 high of 4%.
But Europe faces a highly uncertain economic outlook, raising the question of what the ECB could do beyond Thursday’s meeting.
Inflation is now hovering around the central bank’s 2% target again, with flash data on Tuesday showing consumer prices in the euro zone rose just 1.9% in May. Meanwhile, economic growth has still been sluggish: the gross domestic product in the euro zone grew by 0.3% in the first quarter of 2025, according to the latest estimate.
The bloc faces many unknowns, both at home and abroad. That includes U.S. President Donald Trump’s tariff agenda — widely regarded as having a negative impact on growth — and potential retaliatory moves from the European Union, as well as how the EU’s major rearmament plans and Germany’s big fiscal shift could play out.
Here’s what analysts say about the central bank’s potential next steps, and what they might mean for consumers.
Rate outlook for the rest of the year
Analysts and economists are widely expecting more interest rate cuts from the ECB later in the year, but aren’t counting on the bank to give a strong indication of where exactly rates could be headed.
Tuesday’s inflation figures increased chances that, after this week, the next rate trim could come as soon as July, said Jack Allen-Reynolds, deputy chief euro zone economist.
Others struck a more cautious tone, with Barclays economists suggesting in a note last week that rate cuts are on the horizon but won’t be implemented as soon.
“We believe the ECB will remain non-committal on its policy path and continue to follow a meeting-by-meeting approach to maintain flexibility and optionality in policy calibration,” they said.
They’re also expecting more rate cuts from the ECB, forecasting two more 25-basis-point reductions in September and December — meaning the ECB would hold rates steady over the summer months.
Elsewhere, a BofA Global Research report published earlier this week said the ECB was now “running out of reasons not to go below 2%,” echoing the suggestion of further rate cuts on the horizon.
But, it noted, the ECB is unlikely to give hints about just how low it could go.
“We expect some acknowledgment that door is open to move rates below 2%, but a very explicit signal is unlikely. Uncertainty on tariffs will give the Governing Council enough cover to not pre-commit to more,” the report said.
Crucially, the ECB will also publish its latest staff projections this week, highlighting what it expects for inflation and economic growth. That comes after the Organisation for Economic Co-operation and Development’s latest Economic Outlook report, which forecast 1% growth and 2.2% inflation for the euro area this year.
How rate cuts might affect consumers
For consumers, more ECB rate cuts would mainly affect borrowing and savings rates.
Exactly how it plays out for them depends on what type of products they hold, and how long the rates on them are set for, Bas van Geffen, senior macro strategist at RaboResearch, told CNBC.
For example, he said, a 10-year fixed mortgage and a demand deposit would be affected in different ways.
“The interest rate on short-term deposits tends to follow the deposit rate quite closely,” he said.
“A week after the ECB meeting, the policy rate goes into effect. So, if the ECB cuts the deposit rate Thursday, banks will receive 0.25% lower interest on their deposits with the central bank. This may cause them to lower the interest rate they pay on savings accounts as well,” van Geffen explained.
Products with fixed longer-term rates have a more complicated relationship with central bank interest rates, he said, as they’re not only determined by the current policy rate — which often changes — but also by future expectations.
“The market has long been expecting the ECB to cut rates this week. So, that may already be included in long-term interest rates to some extent. That also means that these long-term rates do not necessarily change after this week’s policy decision,” van Geffen said.