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The European Central Bank is expected to reduce interest rates for the second time this year at its meeting on Thursday, but differences among politicians may be established to increase tariff uncertainty and potential growth of regional defense costs.
The markets on Wednesday, at the price, declined in a quarter of points for a March meeting, taking the key rate of the ECB to 2.5%-diving compared to 4% in the middle of last year. Further reduction up to 2% by the end of the year was also the price.
The last nine months are expected to be a relatively fast pace of monetary relaxation consistently below 3%, and economic growth remaining weak. The head of the ECB Council almost always makes its decisions unanimously and gave relatively firm recommendations on the following steps for market expectations.
However, the Central Bank now appears at a touching distance from the hot “neutral speed” at which the policy does not stimulate or limit the economy if it is expected that the rates will be stored. Politicians disagree with where this level is and whether the rates can lead even lower than this level in response to factors such as low growth.
ECB President Christina Lagard said CNBC in January She believed that the range was 1.75% to 2.25%, which compared to the previous estimate of 1.75% to 2.5% – but ECB itself has not issued more solid indications since then.
Global Research Bank’s analysts said on Wednesday that after the meeting this week, they expected to increase domestic disputes between politicians.
“This is the last” light “speed of reducing our views when the difference growth is,” they said. However, they once again confirmed the opinion that by September to market expectations, so that the ECB decreased to 1.5%.
“Discussion among ECB politicians has picked up in recent weeks,” said Goldman Sachs analysts, who said they expected voting councils to focus on whether broad financial conditions, lending conditions, business reports and lending indicate that rates are still restrictive.
Costs on hike
The forecast, meanwhile, is clouded by many factors that cause markets and economics. Thus, macroeconomic inflation forecasts and growth that will be released on Thursday will be carefully viewed, but can be taken with a pinch of salt.
In the US is there Running tariffs on their largest trading partners who are expected Maybe still cut off. US President Donald Trump said the European Union will be next in a row for high duties – However, the prospect of negotiations also remains in the game. The influence of such tariffs will also be uncertain, with a slowdown in trade, which drags economic activity, but also potentially weighing on the euro, raising import costs.
European governments meanwhile are preparing for Hiking expenses for defense as Relations with the US over the fracture of the war of Ukraine.
Lagarde is likely to be questioned potential impact The deal announced this week In Germany, the country’s expected subsequent partners. The agreement on reforming the German debt rules has not yet been finalized, but is expected to be unlocked to a trillion euro in the cost of defense and infrastructure, with the euro sharply in the news on Wednesday.
Rabobank analysts said the euro’s profit was partly on the expectations that the place to further reduce tariffs on the ECB would be more limited “with the reforms and higher costs, which would lead to” promise of raising economic growth “.
A wider step towards European sharp memory will be a “financial financial expansion that would push economic activity, will allow some reflexes and force the ECB to reconsider its decline in policy speed,” said Thierry Wizman, Global FX and Macquarie strategists.
Still restrictive?
Despite all this uncertainty, some analysts do not expect January emphasized The inflation was expected to approach the goal, the monetary policy remains restrictive, and that the Central Bank would continue its dependent approach.
Particular attention will be paid to whether the message changes that the “restrictive” policy is, and whether it is believed that the rate may be held in April.
“Given the unusual uncertainty created by the constant political and geopolitical events, we expect that the ECB governing council will be due this week to get the best possible opportunities in the next steps,” Citi analysts said on Wednesday.
“We believe that this can translate into a more careful communication, no longer claiming that the monetary policy is restrictive. We would not read it as a sign that pause during the weakening, however, increase geopolitics.
