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This photo, taken on January 30, 2025, shows that the ECB headquarters in Frankfurt, Germany.
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The European Central Bank is expected to worsen interest rates for the third time, as global tariffs and uncertainty threatens the eurozone economic growth.
As of Wednesday, markets last prices for approximately 94% of the chances of a quarterly interest rate from the Central Bank and almost 6% likely a higher decrease in the 50-base base according to LSEG data.
In the quarter, the point section will bring the rate of the ECB deposit, its key rate, up to 2.25%-up to 4% by mid-2023.
A series of relatively rapid reduction in interest rates were played, as inflation in the euro area was consistently sitting below 3%, recently closing the ECB’s 2%. Meanwhile, regional economic growth was insufficient.
When the Central Bank was last reduced in March, it set up its language around the monetary policy, which it is said that “becomes much less restrictive.” In January, the ECB still described the monetary policy as “restrictive”.
Some economists have interpreted the shift in the language as a signal that politicians became more attentive to accepting interest rates further, inciting the questions whether the pause to the cycle of weakening of cash ahead. But world trading and tariffs in the last few weeks have moved this look.
Fears of growth caused by the tariff
“After the March meeting, the ECB seemed to be completed at the next meeting.
“In particular, since Europary after the German financial reversal and strong European intentions to spend more on security and protection clearly improved the Eurozone growth. However, because” Liberation Day “is not an option,” he said, believing the world tariff policy has raised concern about growth in the euro area.
And so “ECB is forced to cut”, evaluated Brzeska.
Many announced tariff plans from the US, as well as revenge measures identified by Washington trading partners, were stopped or decreased – at least temporarily – as they were first imposed earlier this month by President Donald Trump. But the forecast for trade, tariffs and potential macroeconomic fallout remains cloudy, Ryan Jajasoputra, economist Investec, is noted in the note.
“The uncertainty remains high, and there is still no guarantee of individual countries, otherwise the EU will be able to agree with the US transactions. Also, there is no confidence that the US president will not change his policy in the future, such a nature of the current environment,” he said, believing that it will support the case for finishing the interest rate.
Restrictive rates?
After softening its tongue around how restrictive rates in March, ECB can again make the settings on Thursday.
Brzeski Ing said the Central Bank should “change communication”, assuming the Central Bank would be a flag, that a lower 2.25% deposit “would be within a range of neutral interest rates” if the ECB will choose for further finishes.
The topic where the so -called neutral speed is the ECB has been discussed for several months among politicians, analysts and economists. At the neutral level, interest rates do not stimulate or limit the economy and can be resistant.
ECB assessment Its neutral speed is from 1.75% to 2.25%.
Deutsche Bank Research economists have been more weighing about any potential language shifts, saying they believe that the language will remain unchanged on Thursday. “In conjunction with the opinion that inflation is returning to Target, it has implicitly rested.”
ECB speed rate policy “clouded” by US policy
Outside the ECB decision on Thursday, it is expected that the path to interest rates will be “open”, according to Deutsche Bank Research economists.
They do not see the formulations of the ECB around the worldview, which change from the assessment of politicians, who claim that they were not pre -transmitted in a certain way and will make decisions depending on each meeting.
“This open-age wording allows the policy to remain restrictive, proceed to neutral or transform stimulating,” they said, adding that it technically means that it can be done in June to stop.
Economists’ forecasts still suggest a further decrease in rates.
Much in terms of politics ahead will depend on the US and the events in the world trade, offered Djajasaputra Investec.
“In April, the forecast for the ECB interest rate is clouded and attracted by the White House policy policy,” he said, adding that he expected a further reduction in the end of this year – although the terms of this step will depend on the upcoming economic data and other economic developments.
