MNI ECB WATCH:Rate Set To Be Cut To 2%, As Trade Clouds Future

The European Central Bank is set to lower its deposit rate by 25 basis points to 2% on Thursday, cutting for a seventh consecutive meeting to a level once seen as a landing zone as rising global uncertainty increases the risks of further easing. (MNI SOURCES: Risks Tilt To Downside As ECB Mulls Path Below 2%).

The ECB will also present a fresh round of projections, likely lowering the inflation forecast for 2026 to 1.7% or 1.8%, from 1.9% in March (MNI SOURCES: ECB Set To Lower 2026 Inflation Projection). The estimate for 2027 is set to be revised slightly lower to 1.9%.

Despite these downward revisions, the ECB will maintain its data-dependent, meeting-by-meeting approach, with a pause to the easing cycle possible in July, though further easing could follow if the lower inflation path is confirmed in September or later. (MNI INTERVIEW: Risk Rising Of Sub-2% ECB Rates-Malta's Demarco).

High levels of uncertainty around international trade, energy and exchange rates continue to cloud the outlook, making it hard to distinguish between structural and transitory forces behind inflation.

Any indication from ECB President Christine Lagarde’s comments or in the statement that the easing cycle is set to continue would be taken as a dovish signal, particularly after Lagarde's comments that the direction of travel is no longer clear.

Scenarios

The new projections will include alternative scenarios, seen as crucial for gauging the potential impact of U.S. tariffs and the possible redirection of Chinese goods toward Europe. For the moment, the consensus among policymakers remains that the effect of U.S. trade policy will be disinflationary in the short term, with the medium-term implications still unclear.