JUNE ECB INTEREST RATES DECISION: RATE CUT LIKELY AS INFLATION COOLS ACROSS EUROZONE

The European Central Bank (ECB) after their two days meeting is due to announce its monetary policy decision today the 5th of June 2025 by 4:15PM GMT +4 (Dubai time).
Markets have priced in a 25 basis points cut, hence reducing the key deposit rate to 2.00% and Main refinancing rate to 2.15% by the committee.
In view of the expected outcome, this would mark the eight cut since ECB began her rate cut circle by mid last year. Meanwhile, analyst expects a pause by July as inflation is tilting towards its desired target.
 

EUROZONE INFLATION OVERVIEW:  

As of June 3rd, 2025, the flash estimate for the eurozone May 2025 inflation rate by Eurostat shows that annual inflation decreased to 1.9%, which is a notable decline from 2.2% in the month of April. This marks the first time since September 2023 that inflation has fallen below the European Central Bank (ECB) 2% target. Considering the top five economies in the Eurozone, inflation continues to show signs of easing across the region. With Germany (the biggest economy in the zone) inflation rate seating at 2.1%, signifying a slight decrease from 2.2% in April, to France which has maintained a stable inflation rate for three consecutive months at 0.8% which suggest that price pressure has remained subdued. Italy inflation rate eased to 2.0% in the month of April from 2.1% in March. While Spain decreased from 2.2% in April to 1.9% in May, reaching the lowest in October of 2024. This decrease was as a result of decline in leisure, culture and transportation prices. Meanwhile, Netherlands witnessed a sharp decline too from 4.4% in April to 3.3% in May, marking it the lowest since January but still above the eurozone inflation target.
These data points reflect a general trend of easing inflation across the eurozone, which aligns with the European Central Banks target of around 2%. On the overall, the Netherlands higher inflation is as a result of wage growth and strong demand.

POTENTIAL EFFECTS OF TODAYS DECISION ACROSS ASSET CLASSES:  

Other things being equal, a rate cut usually makes a local currency less attractive for investors seeking high yields hence the Euro would likely be pressured across board except otherwise. European equities would likely benefit because the cost of borrowing is lowered, hence giving corporate earnings a boost. The bond market on the other hand, usually experience yields decline, as existing bonds with higher rate becomes more attractive. This can result in price appreciation for current bondholders. Investors may also anticipate further easing, influencing the yield curve dynamics.
In view of the today’s reading, a rate cut is widely anticipated by the markets. Whereas market participants would pay close attention to the President, Christine Lagarde’s statement for clues about future policy moves. Meanwhile, Factors such as ongoing trade disputes with the U.S. and evolving economic indicators will play crucial roles in shaping the ECB's monetary policy trajectory.