It was going to be the most open meeting in recent months. Germany’s decision to break with austerity and launch a historic investment plan in defense and infrastructure, with its consequent favorable impact for growth, and therefore, its risks for inflation and economic overheating, it seemed the right signal to make a pause in interest rates that already accumulate six discounts in the last seven quotes of the European Central Bank ,. Then Donald Trump appeared waveling a table full of percentages. Liberation Dayhe snapped. And the wind began to blow in front: the market awaits this Thursday a new cut of 25 basic points in the price of money by Frankfurt, to 2.25%.
That frantic April 2 has acted as a huge trend accelerator. And contrary to what happens in the US, for Europe all tend to disinflation. The euro has rebounded 4% since that day, and almost 10% is revalued against the dollar so far this year. It is changed to 1.13 green tickets, around maximums of more than three years, and that decreases the invoice of imports, especially energy, of which Europe is very dependent. In addition, gas price has deepened its falls, and the Dutch TTF, the main European index that measures its evolution, is already left 40% in this 2025, which lowers electricity prices. Also downwards, the barrel of Brent oil, 13% more affordable than at the beginning of the course, twice the decrease in the last 12 months.
If to that cocktail it is added that the inflation of the euro zone closed March by 2.2%, touching the goal of Frankfurt – with the sticky inflation of services, one of the great headaches for the ECB, also slowing down from 3.7%to 3.4% -, and the threat to economic growth involved in the commercial war, very few expect something other than a cut of types: 98.5% probabilities to that movement, discount the decrease. “The ECB is obliged to cut interest rates again this week. […] Not only would he doubt the will of the ECB to boost growth, but could also lead to additional and unjustified strengthening of the euro, ”says Carsten Brzeski, Macro Head of ING.
A strong euro is positive as a uninflationary force, but too much can be harmful. Penalizes tourism and export sector, because its goods and services are more expensive and, therefore, less competitive, and the questioning of its role as a world reference currency and refuge value, can have counterproductive effects. To reduce interest rates devalues the European currency, a way to reduce that risk, although Donald Trump’s movements and the Federal Reserve can counteract them.
Decouple between the two large central banks seems increasingly evident, because different are the scenarios that project the rates increases. “In the United States, if tariffs cause a rise in prices just when the weakening of economic perspectives requires a decrease in interest rates, the Federal Reserve could be seen in a tighten. Instead, other central banks may face less limitations when cutting the types,” compare Pimco experts.
More cuts in June?
In UBS they go further, and now plan type cuts by the ECB both this Thursday and at the next June meeting, when they would be 2%, without completely ruling out another other in July. If it extends until then, the streak would be eight declines of consecutive types. Brzeski, of ING, believes that next to the cut ,. “Instead of saying that monetary policy is becoming significantly less restrictive, the ECB is likely to point out that, in 2.25%, the deposit rate would now be within the range of neutral interest rates,” predicted.
It remains to be seen if the most hawk sector of the bank – partisan of not going so fast in the softening of monetary policy – raises the voice. Mark Dowding, RBC Bluebay analyst, contemplates that future possibility. “At a time when Germany embarks on an ambitious flexibility of fiscal policy and the risks of inflation increase, a series of ECB hawks will resist making additional rates cuts in the coming months, since the types have dropped to relatively close levels to where the Governing Council saw that neutral interest rates would be located.”
The most eloquent member of the Falcones group, the governor of the Austrian Central Bank, Robert Holzmann, whose mandate expires in September, said in an interview with Reuters At the beginning of the month that does not see reasons to further cut interest rates, since in their opinion they are not slowing economic growth and inflation continues to fall as expected, but so far their proclamations have been ignored by the rest.
Enrique Diaz-Alvarez, economist in Ebury, estimates that the rebound of the euro and the widespread chaos in the markets have sealted “almost certainly” the agreement for another type cut, and emphasizes the statement of the ECB and the speech of its president, Christine Lagarde. “The main focus of the markets will be in the bank’s observations on the way to continue in policies, in particular communications on,” he predicts. The former Italian Treasury Secretary Lorenzo Codogno also expects an attempt to reassure markets, scrambled these last two weeks. “The Governing Council must also convey that it is prepared to use all available tools if the situation and perspectives deteriorate.”
