ECB reduces key interest rate to 2 percent: Economy in the euro zone on the ground!

ECB reduces key interest rate to 2 percent: Economy in the euro zone on the ground!

Vienna, Österreich - The European Central Bank (ECB) reduced the deposit rate again on June 5, 2025. According to the current decision of the ECB council, the interest rate is now 2.0 percent, which is a decline of 0.25 percentage points. This measure is part of the continued interest reduction course of the ECB, which was initiated in the euro area due to a falling inflation and a weak economy. The key interest rate, to which banks borrow money from the central bank, was also reduced to 2.15 percent. This is the eighth interest rate reduction since mid -2024.

The inflation rate in the euro area was 1.9 percent in May 2025, which is below the target of 2.0 percent. The ECB remains undecided in view of the current economic situation and has not given any clear indications of a future interest rate policy. This uncertainty is shaped not only by the level of inflation, but also by the generally weak economic growth of the euro zone.

economic framework conditions

According to the ECB, the reasons for these interest reductions are understandable. The EU Commission recently predicted that the gross domestic product (GDP) in the euro zone in 2023 will only grow by 0.9 percent, which represents a decline compared to the previous estimate of 1.3 percent. Germany in particular, as the largest economy of the euro zone, continues to show that there is continuing weakness, and the German Chamber of Commerce and Industry awaits the third year of recession in a row.

The current economic challenges are also influenced by a global trade war, which is heated by measures by US President Donald Trump. Companies in the region show behavior with investments, which further makes it difficult to relax the economy. Nevertheless, there are occasional bright spots, such as the planned military upgrading in Europe and a comprehensive financial package in Germany, which is considered possible engines for future growth.

effects on monetary policy

The current developments also have an impact on ECB's monetary policy. Banks react to the sunken interest with changes in their lending and money posture. Lending to private households and non -financial companies increases, although demand remains limited by the increased credit risks. Banks are planning to tighten the credit guidelines in the corporate customer business in the second quarter of 2025, although the demand for housing loans increases due to the declining interest rate level.

For detailed information on the interest reductions of the ECB, please visit vienna.at . Further insights into the economic framework can be found in the article by Tagesspiegel . Analyzes on monetary policy and their effects can be read in the monthly report of the Bundesbank