On Thursday, the European Central Bank (ECB) reduced interest rates by 25 basis points for the seventh consecutive time, bringing the benchmark rate down to 2%, the lowest level since December 2022. ECB President Christine Lagarde reiterated the bank's ability to navigate uncertainties as she marked the year since her first rate cut in June 2022 by wearing a necklace featuring the phrase 'In charge.'

Market expectations for the rate cut were virtually unanimous, with only one dissenting vote from Austrian central bank governor Robert Holzmann, known for his hawkish stance.

The decision reflects the ECB's strategy to respond to a decline in inflation below the 2% threshold, amidst a strengthening euro, reduced energy costs, and stabilization in service prices.

The ECB's rate cuts over the past year have totalled 200 basis points, significantly outpacing reductions by the US Federal Reserve and the Bank of England, which have lowered rates by 100 basis points each.

The potential for inflationary pressures is closely monitored, particularly in light of ongoing trade negotiations between the EU and the US, with a deadline set for July 9, 2023, to reach an agreement and avert a further escalation of tariffs.

Economists at the ECB have slightly revised their growth forecasts, projecting a GDP increase of 0.9% for 2025 (unchanged), a decrease to 1.1% for 2026 (down 0.1%), and maintaining a 1.3% growth outlook for 2027. Lagarde noted that the steady forecast for 2025 is attributed to a stronger-than-expected first quarter, supported by increased purchases from US companies that are building inventories in anticipation of potential tariffs.

The eurozone saw a GDP growth of 0.3% in the first quarter of 2023, with possibilities of an upward revision in future reports.

Despite the absence of explicit mentions of Donald Trump in ECB communications, the impact of evolving trade policies and uncertainties was acknowledged, alongside the expectation that public investments in defense and infrastructure would gradually support medium-term growth in the EU.

The July 9 deadline for the US trade agreement serves as a reminder of existing vulnerabilities.

However, minimal changes in growth projections and positive indicators from Brussels regarding negotiations provide a cautious sense of optimism.

The ECB's updated inflation projections show a significant improvement, anticipating an average rate of 2% for this year (down from 2.3% previously), with forecasts of 1.6% for 2026 (down from 1.9%) and 2% for 2027 (unchanged).

Influencing factors include a 10% appreciation of the euro against the dollar and a 14% drop in Brent crude oil prices, along with nearly a 40% decrease in natural gas prices since February.

In all scenarios, inflation remains controlled, with even the most adverse conditions projecting a steady 2% inflation rate this year, albeit with a reduced growth forecast of 0.5% due to potential return to previous tariff levels.

The ECB aims to keep growth estimates for 2025 at 1.2% while maintaining stable prices.

Given the current data, analysts are increasingly leaning towards further easing of monetary policy within the eurozone.

Expectations indicate that further rate cuts may occur, with one to two additional reductions anticipated by the end of 2025, particularly in September and December as likely candidates.

Following the latest meeting, internal sources revealed a possibility of a pause in rate changes during the July meeting.

This projected downward trend in inflation coincides with a potential break for the Euribor, which is nearing the 2% threshold for the first time since September 2022, benefiting variable-rate mortgage holders and facilitating home financing.

The Spanish real estate market recorded 183,000 property transactions in the first quarter, the highest since the previous financial crisis.

The ECB has observed a notable decline in previously concerning price categories.

Service inflation dropped from 4% to 3.2%, the lowest in over three years, while negotiated wages moderated from 4.1% to 2.4%.

Core inflation, excluding volatile categories such as energy and food, also decreased from 2.7% to 2.3% in May.

Lagarde cautioned that the outlook remains more uncertain than usual due to trade dynamics.

Addressing inquiries about external prospects, she indicated her commitment to completing her tenure and did not confirm discussions regarding attendance at the World Economic Forum.

In response to questions regarding BBVA's takeover bid for Sabadell, Lagarde referred to ECB Vice President Luis de Guindos, who emphasized the need to wait for a government opinion to avoid speculation.

The ECB previously indicated no opposition to the proposed acquisition of Sabadell.