Expected Interest Rate Cuts by Central Banks in 2025: What It Means for Borrowers and the Economy

Expectations are mounting that the world’s major central banks will begin gradually lowering their key interest rates this year. The timing and extent of these cuts, however, will be at the sole discretion of each institution.

According to the European Central Bank (ECB), short-term inflation may rise as a result of U.S. President Trump's tariff policies and the retaliatory measures by affected countries. While the ECB has already significantly cut rates in recent years, it emphasised that the door remains open to further reductions. The next interest rate decision is scheduled for Thursday, April 17. Financial experts recommend that anyone with a mortgage linked to the Euribor index should pay close attention.

Euribor, the Euro Interbank Offered Rate, reflects the average interest rate at which a panel of European banks borrow funds from one another. It is involved in the formula by which banks decide what terms to lend on.

Market sentiment ahead of this week’s ECB meeting is evenly split (50:50). While some argue for maintaining current rates amid ongoing economic uncertainty, others believe a 0.25% rate cut is likely.

Worsening financial conditions and falling oil prices support the case for further interest rate reductions in the spring and summer. Recently, crude oil hit a four-year low, driven by two main factors: fears of a global recession triggered by trade tariffs, and OPEC’s decision to increase oil output, sparking concerns of oversupply.

On the other hand, Germany’s fiscal stimulus may contribute to medium-term inflation. The U.S. Federal Reserve (Fed) is also predicting a rise in inflation this year, driven by tariffs and uncertainty around presidential decisions. The Fed expects higher unemployment and slower economic growth. At its last meeting in late 2024, the Fed left the federal funds rate unchanged, unlike the ECB, which has been slowly and cautiously lowering rates. Still, projections suggest that the Fed may reduce its benchmark rate by 0.50% over the course of 2025.

It remains uncertain whether these forecasts will materialize. In Bulgaria, the Bulgarian National Bank’s (BNB) base interest rate, effective as of April 1, 2025, stands at 2.39%.

The expected easing of monetary policy should result in more accessible credit for both businesses and individuals. However, interest rates are not the only factor influencing monthly loan payments. Credit risk, inflation, and other financial risks can weigh heavily on borrowers.

On the property market, a slight decrease in demand is anticipated, which may lead to a slowdown in the pace of property price increases.