The European Central Bank’s (ECB) Governing Council unanimously decided to cut rates by 25 basis points, aligning with market participants’ expectations, analysts from Ebury noted.
Analysts observed that the ECB’s communications were “dovish,” indicating that disinflation is on track, supported by a stronger euro. However, there are concerns that the trade policies of Donald Trump could drive the already fragile eurozone economy into recession, necessitating a quicker pace of rate reductions.
In the current shifting geopolitical landscape, the ECB’s decision to avoid explicit forward guidance was prudent, analysts commented. The removal of the word “restrictive” from its statement, greater confidence in inflation, and increased concerns about growth prospects suggest that further cuts are almost certain. Ebury analysts anticipate another cut in June, expecting three additional rate reductions to bring the deposit rate to 1.5%.
Dean Turner, chief eurozone economist at UBS Global Wealth Management, pointed out that policymakers are trying to balance expansionary impulses amid growth, inflation, and ongoing trade conflicts, against more restrictive developments, particularly in fiscal policy, with Germany highlighted.
The economist foresees a further cut in June, with the possibility of more stimulus measures throughout the year, depending on trade negotiations’ progress.
Analysts at Xtb noted the decision met market expectations amidst uncertainty caused by the trade war, leading the ECB to downgrade its growth forecasts.
Germany’s Ifo institute expressed support for today’s rate cut, with its president, Clemens Fuest, stating that the unpredictable tariff policies of U.S. President Donald Trump have recently increased the risk of an economic recession, while inflation risk is likely to decrease. Fuest noted key reasons for this include the euro’s recent appreciation against the U.S. dollar, a drop in oil prices, and an increased supply of Chinese products due to U.S. tariff policies. In this context, he suggested the ECB’s rate cut was justified.
The ECB announced it decided to cut key rates by 25 basis points, acknowledging that eurozone growth prospects have deteriorated due to escalating trade tensions.
