European Central Bank lowers interest rates again in response to U.S. trade war

The European Central Bank (ECB) has lowered the interest rates in the eurozone by a quarter of a percentage point to support the struggling economy, as was previously anticipated by financial specialists. It is the seventh time that the ECB have lowered the interest rates since June of last year.

The most well-known interest rate in the eurozone will drop from 2.5 to 2.25 percent. The lower interest rates will make it cheaper for banks to loan money from the central bank in Frankfurt. Because of this, banks can lower the interest rates for the money that they loan to consumers, companies, and governments. This can lead to increased expenditure and investments from the banks. Mortgage rates may also fall, but saving will yield less in the long run.

ING economist Carsten Brzeski noted days ago that the policymakers at the ECB are practically being forced to lower the interest rates due to the trade war initiated by the President of the United States, Donald Trump. “After the meeting in March, the ECB seemed ready for another break in the next meeting,” he said. However, according to Brzeski, this was no longer an option after Trump had announced large-scale import tariffs.

ING already announced last week the bank planned to cut interest rates on savings accounts. From April 18, accounts with 10,000 euros or less will carry a 1.25 percent interest rate, down from 1.50 percent. The rate will also be cut for accounts holding a higher savings balance.

Several policy makers at ECB had also warned that the tariffs could weaken the economic growth of the eurozone considerably. ECB president Christine Lagarde also explained that the world wide trade war that Trump has started should be a “wake up call” for Europe.

Europe has to become economically independent, she said, for example financially and with energy provisions. Lagarde has also stated several times that everybody loses in trade wars, including the U.S.

Klaas Knot, who heads up the Dutch central bank, also said last week that financial market unrest was not yet to a point where the ECB needed to step in and attempt to stabilize the situation. The markets were functioning well despite the tumult, compared to previous years when intervention was needed because major players in the financial markets were less prepared than they are today.

"Of course I can't guarantee anything. As we speak, the market is moving again and the more movement, the more difficult it can become for certain parties," said Knot, the president of De Nederlandsche Bank.

The ECB emphasized remaining resolute in their efforts to ensure that inflation “stabilizes sustainably on the target of two percent in the medium-long term.” The ECB made a point not to answer questions of whether more interest rate decreases can be expected.

“Especially in light of the current exceptional uncertainty, we will follow a data-driven approach on a meeting-by-meeting basis to determine the appropriate monetary policy stance.”