In a significant monetary policy decision, the European Central Bank (ECB) lowered interest rates by 25 basis points to 2% on Thursday, marking a return to levels not seen since December 2022. The decision reflects the ECB's updated assessment of the economic landscape, characterized by low growth prospects worsened by a trade war initiated by the United States.

The deposit facility rate, which compensates banks for excess reserves held overnight, has been adjusted to 2%, while the rate for main refinancing operations falls to 2.15% and the marginal lending facility to 2.4%.

The move is a continuation of the ECB's strategy, as it represents the seventh consecutive rate cut and the eighth adjustment in the current cycle of monetary easing.

ECB President Christine Lagarde noted that inflation remains around the governing council's medium-term target of 2%, justifying the decision.

The council convened exactly one year after initiating rate cuts, following a period of steep increases from 0% to 4.5% to combat inflation that once exceeded 10% in the eurozone.

Lagarde indicated that the rate cut received almost unanimous support, with only one member dissenting.

Despite this measure, economic forecasts for the eurozone remain bleak.

Several international organizations have revised down growth projections for GDP in the common currency countries for 2025 and 2026. The OECD recently lowered its growth forecast for 2023 to 1% from 1.3% and for 2026 to 1.2% from 1.5%, citing uncertainties arising from the ongoing trade war.

The trade conflict has escalated recently, with the United States implementing new tariffs on imports of steel and aluminum, a move criticized by its trading partners.

These tariffs have sparked discussions about whether the U.S. could reverse its position, as many view the measures as detrimental to negotiations aimed at finding a resolution.

The European Commission has indicated that if a satisfactory solution is not reached, retaliatory measures could be imposed as early as July 14.

The implications of the tariffs on the European economy could be twofold; they may slow growth and reduce prices, while simultaneously increasing the value of the dollar, leading to imported inflation in the eurozone.

Potential European countermeasures could rekindle inflationary pressures, further complicating the ECB's task of managing interest rates.

However, the ECB noted a decrease in concerns over the impact of rising uncertainty and market volatility on financing conditions.

The central bank has also released new macroeconomic projections.

It forecasts a revised average inflation rate of 2% for 2025, aligning with its inflation target, and a reduction to 1.6% for 2026. Economic growth projections remain at 0.9% for 2025, while a slight decrease to 1.1% is expected for 2026.

The ECB acknowledged that while trade policy uncertainty may affect business investment and exports, increased public investment in defense and infrastructure will support medium-term growth.

In related news, questions arose during the press conference regarding Lagarde's future as ECB President amidst speculation about her potential departure to lead the World Economic Forum.

Lagarde firmly rejected such claims, affirming her commitment to fulfill her mandate with a lighthearted remark, "I regret to inform you that you will not get rid of me."