European Central Bank leaves rates unchanged as economy weathers Trump's
tariffs
[September 12, 2025] By
DAVID McHUGH
FRANKFURT, Germany (AP) — The European Central Bank left interest rates
unchanged Thursday with inflation back under control and the economy
weathering Trump’s tariff onslaught better than expected.
The bank’s rate-setting council left its benchmark deposit rate
unchanged at 2% at a meeting at its skyscraper headquarters in
Frankfurt.
The focus in Europe has shifted to the fiscal crisis in France and any
possible role for the ECB in containing potential market turmoil that
could erupt from the country’s out-of-control deficit and political
logjam.
Bank President Christine Lagarde said after the rate decision that
monetary policy was “in a good place” and that decisions are being made
“meeting by meeting," She gave no hint of future moves, saying the bank
is “not on a predetermined path."
The ECB is standing pat on interest rates even as the US Federal Reserve
has held the door open for a possible cut at its Sept. 17 meeting.
The 20 countries that use the euro currency — and where the ECB sets
rate policy — showed 0.1% growth in the second quarter over the quarter
before, not great but not sliding into outright recession either despite
the disruption from U.S. President Donald Trump’s new and higher
tariffs. The S&P Global survey of purchasing managers, a key indicator
of economic activity, came in at 51 in August, with readings over 50
indicating expansion.

The EU’s executive commission calmed the mood somewhat by negotiating a
15% ceiling on US tariffs, or import taxes, on European goods brought
into the US. While that’s far higher than pre-Trump tariff levels, Trump
had threatened even higher rates and the deal gives some certainty that
trade will continue, albeit with higher costs.
"Trade uncertainty has clearly diminished,” Lagarde said.
The ECB’s deposit rate influences borrowing costs throughout the
economy. The ECB raised rates sharply to combat a burst of inflation in
2021-23, and has since lowered them as inflation came back under control
and concerns grew about growth. Higher rates fight inflation but can
slow growth, while lower rates can stimulate economic activity by making
borrowing cheaper for purchases.
[to top of second column] |

The Euro sculpture stands in front of the former headquarters of the
European Central Bank (ECB) in Frankfurt, Germany, May 23, 2023. (AP
Photo/Michael Probst, File)
 Eurozone inflation was 2.1% in
August, roughly in line with the bank’s target of 2%. With growth
holding up, that means there was no great pressure to move rates
Thursday. Analysts think another cut is possible in coming months.
Lagarde was asked several times about the French government's fiscal
crisis. The French government’s bond-market borrowing costs have
risen somewhat due to the inability of a divided parliament to
tackle the large deficit, which was 5.8% of GDP last year. In case
of a full-blown market panic that sends rates higher, the ECB could
intervene to purchase French bonds and drive down borrowing costs.
But that’s only possible for countries that are obeying the EU’s
rules on limiting debt or are moving to comply, which France at this
point is not.
Lagarde said the ECB's emergency bond market backstop, dubbed the
transmission protection instrument, was not discussed at the meeting
and that the broader European bond market was functioning normally.
“I’m not commenting on any particular country, but suffice to say
that we always monitor market developments and euro area sovereign
bonds are orderly and are functioning smoothly with good liquidity,”
she said.
Analysts say the challenge for Lagarde is to avoid suggesting the
ECB would bail out politicians who won’t manage the government’s
finances properly, while not taking such a hard line that she
unsettles bond markets.
All contents © copyright 2025 Associated Press. All rights reserved
 |