ECB cuts rates for eighth time amid trade war risk

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FRANKFURT (Reuters) -The European Central Bank cut interest rates for the eighth time in a year on Thursday, acknowledging inflation was under control and turning more pessimistic about the euro zone’s economic prospects amid risks of a trade war with the United States.

Thursday’s cut lowers the rate that the ECB pays on bank deposits from 2.25% to 2.0%, the middle of the range that the central bank sees as “neutral” – neither curbing nor boosting the economy.

The ECB kept all options open for its subsequent meetings, although some policymakers and many investors expect a pause in rate cuts at its next meeting in July.

“Especially in current conditions of exceptional uncertainty, (the ECB) will follow a data-dependent and meeting-by-meeting approach,” it said.

Euro zone inflation has fallen back to the ECB’s 2% target after a torrid three years and even previously stubborn price growth in the services sector has slowed.

This is allowing the central bank to shift its focus to the euro zone’s sluggish growth outlook, which has been made worse by U.S. President Donald Trump’s tariff threats.

The ECB, however, also acknowledged the prospect greater government spending.

“While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term,” the ECB said.

With Thursday’s decision, the ECB also cut the interest rate at which banks can borrow at its weekly auctions – to 2.15% from 2.40% – and overnight, to 2.40% from 2.65%.

Attention will now turn to ECB President Christine Lagarde’s press conference at 1245 GMT.

(Reporting By Francesco Canepa; Editing by Catherine Evans)