ECB Cuts Rates For The 7th Time, Outlook Leans Dovish Amid "Exceptional Uncertainty"

The European Central Bank (ECB) unanimously cut its three main interest rates by 25 basis points, bringing the deposit facility rate to 2.25%. This decision, the seventh consecutive rate cut, was based on an updated inflation outlook and weaker economic growth due to rising trade tensions. Notably, the ECB removed the word "restrictive" from its statement describing monetary policy. The bank acknowledged the disinflation process is progressing as expected but highlighted increased uncertainty impacting the euro area's economic outlook. Wage growth is slowing, and the ECB adopted a data-dependent approach for future monetary policy decisions. Market reactions included a drop in the EUR/USD exchange rate and a rise in the Bund future, reflecting a more dovish stance than anticipated. The rate cut brings the deposit rate to the top of the ECB's estimated neutral rate range, and the statement omitted any reference to this range. Future actions will depend on incoming economic data, with the ECB seeking to counteract potential tightening of financing conditions. Prior expectations for the rate cut were widespread, and the ECB's communication strategy shifted to reflect the changed monetary policy environment.