ECB poised to cut rates amid trade tensions, easing inflation
Policymakers at the European Central Bank (ECB) are increasingly expected to lower interest rates again this Thursday, as economic uncertainty linked to U.S. President Donald Trump’s unpredictable tariff policies raises concerns across the eurozone.
The uncertainty around Trump's next move, and the negative impact it could have on growth within the single currency bloc, has intensified calls for the ECB to ease borrowing costs further, News.Az reports, citing AFP.
Worries over rising prices have faded into the background, as once sky-high inflation rates have drifted back down towards the ECB's two-percent target.
The central bank has made six quarter-point cuts since June last year as inflation has fallen, bringing its benchmark deposit rate down to 2.5 percent from four percent.
After such a long cutting streak, the central bank "seemed set for a pause" after its last meeting in March, ING bank analyst Carsten Brzeski said.
But the picture has changed significantly since Trump's announcement of a new round of swingeing tariffs, which he referred to as "Liberation Day".
Trump imposed 10 percent tariffs on all imports into the United States.
His decision to suspend even higher tariffs for most countries for 90 days and invitation to key trading partners to cut a deal have done little to quell concerns.
"US tariffs on the EU and many other countries have brought back growth concerns for the eurozone, at least in the nearer term," Brzeski said.
For the members of the ECB's governing council meeting in Frankfurt, a pause in rate cutting was "no longer an option", he said.
Going into the meeting, eurozone policymakers could not be sure what tariff rates would eventually apply to transatlantic trade.
For now, Trump has rowed back on his initial decision to hit all European Union imports with a basic 20 percent tariff, which could rekindle inflation.
But the White House has also imposed 25 percent levies on the automotive, steel and aluminium sectors, and opened probes into semiconductors and pharmaceuticals that could lead to more industry-specific tariffs.
"Heightened trade uncertainty and tighter financial conditions" caused by Trump's announcements have increased the "downside" risk for the eurozone, according to analysts at Italian lender UniCredit.
In that context, another cut to relieve stress on households and businesses and support the economy seemed "straightforward", the analysts said.
The ramifications of higher US tariffs would "outweigh the positive impulse" given by massive planned spending in the eurozone's biggest member, Germany, they said.
The incoming government in Berlin led by Friedrich Merz has lined up hundreds of billions of euros in extra cash for defence and infrastructure, providing a boost that could be felt across Europe.
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