MNI ECB WATCH: 25BP Cut Likely As Tariffs Darken Outlook

The European Central Bank is set to lower its deposit rate by 25 basis points to 2.25% on Thursday, cutting for a sixth consecutive meeting as volatile markets await the outcome of a 90-day partial tariff reprieve announced by U.S. President Donald Trump.

While policymakers had earlier anticipated the two-day April meeting would be live, with a pause potentially in play, consideration of the impact of trade disruption has left little doubt that the ECB will cut, though investors will carefully parse its language, following the shift in the March statement to policy being at “meaningfully less restrictive” levels. The central bank is also likely to repeat its commitment to make use of all of the instruments within its mandate to ensure that it reaches its inflation target.

UNCERTAINTY

President Christine Lagarde has already said a U.S. tariff of 25% would lower euro area growth by about 0.3 percentage points, even as EU retaliatory measures and a weaker euro could lift inflation by around half a percentage point. But these calculations are moot as trade talks continue between Washington and other world capitals.

Extremely elevated trade and geopolitical uncertainty is likely to keep the ECB to its stance of setting policy according to data and on a meeting-by-meeting basis, even as eurozone inflation is relatively under control. Markets have priced in a total 80 basis points of easing in the deposit rate by December, though officials have stressed uncertainty as to when precisely additional cuts might take place, and when the ECB might pause for the first time since July. (See MNI SOURCES: ECB Still Set For 2% Deposit Rate As Yields Surge)