ECB cut: interest rates are falling, but what does that mean for savers and buyers?

ECB cut: interest rates are falling, but what does that mean for savers and buyers?

The European Central Bank (ECB) today decided again to cut key interest rates, which is the eighth rate cut since the measures began in June 2024. The deposit rate will be cut by 0.25 percentage points to 2.0 percent, halving since interest rate cuts began last summer. The main refinancing rate for banks will also be reduced from 2.4 percent to 2.15 percent, as vol.at reports.

The ECB is behaving cautiously given the “exceptionally high uncertainty” in the current economic situation. The customs dispute with the USA in particular is putting a strain on the economy and affecting household confidence and investments. ECB Vice President Luis de Guindos has repeatedly expressed concerns about the negative impact of this trade conflict. President Christine Lagarde sees both risks and opportunities for the European economy in the context of the changing global order.

Inflation and its consequences

The inflation rate in the euro area fell to 1.9 percent in May 2025, down from 2.2 percent in the previous month. However, this positive development may not be enough to boost consumer confidence, as many still have high inflation expectations. According to tagesschau.de, consumers themselves are not experiencing any noticeable relief, as food prices in particular continue to rise.

In the last five years, food prices have risen by an average of 30 percent, with inflation rates of over 3 percent for milk, sausage and chocolate and over 4 percent for fruit, vegetables, fish, meat and poultry. Consumers even expect price increases of 3.1 percent for the next twelve months, which is the highest value in over a year.

Monetary policy perspectives

The ECB faces the challenge of achieving its main goal of stable prices with a medium-term inflation rate of 2.0 percent, while analysts predict a possible pause in monetary policy. Once prices and consumption have stabilized, further interest rate policy could follow to strengthen confidence in the institution. However, analysts warn that cutting interest rates too quickly could lead to price bubbles, particularly in the real estate market, as detailed in vol.at.

The main market is already optimistic about a possible stabilization. The DAX recently exceeded 20,000 points, while many economists speculate whether further interest rate cuts will really lead to increased investment activity, or whether the ECB should instead leave interest rates unchanged and actively fight inflation, as some experts in tagesschau.de have determined.