The European Central Bank’s recent interest rate cut is intended to prevent inflation from dipping below its 2% target, according to ECB Chief Economist Philip Lane.
Addressing investors in Dublin on Wednesday, Lane emphasized that the rate reduction was a proactive measure to avoid a prolonged period of sub-target inflation.
“This move helps ensure that the expected short-term drop in inflation over the next 18 months remains temporary, and doesn’t become a more persistent divergence from our target,” Lane stated.
Last week, the ECB lowered its benchmark interest rate for the eighth time since June 2024, responding to data showing annual inflation fell to 1.9% in May.
The decline in inflation has been driven largely by a sharp drop in energy prices, following President Trump’s announcement of sweeping new tariffs on global imports. In light of this, ECB projections now estimate inflation will average just 1.6% in 2025—well below the central bank’s 2% goal.
