The European Central Bank is expected to make yet another interest rate cut Thursday as global tariff turmoil has created widespread uncertainty and spurred fears about the euro zone’s economic growth.
A rate cut is being fully anticipated by markets, with an around 94% chance of a 25-basis-point trim being priced in, according to LSEG data.
That would take the ECB’s deposit facility rate, its key rate, to 2.25%. At its highs in mid-2023 it had been at 4%.
Tariff developments in recent weeks are widely seen as a key reason for the ECB to cut interest rates. Even though many of the initial duties imposed by the U.S., as well as retaliation measures, have been put on ice or eased, fears about how they could affect economic growth have been rife.
Investors will be watching out for any comments regarding tariffs in the ECB Governing Council’s statement and from the central bank’s President Christine Lagarde in her post-meeting press conference.
Market attention will also focus on whether the ECB tweaks its language around the restrictiveness of monetary policy, and if policymakers provide any clues around the hotly debated so-called neutral rate. That is the level at which interest rates neither stimulate nor restrict the economy, and are therefore held at.
While a rate cut is expected, “more importantly for markets will be the extent to which the central bank decides to communicate what it perceives to be the “neutral rate”, and whether monetary policy could turn accommodative – i.e. go below the neutral rate – in the next six to 12 months,” Julien Lafargue, chief market strategist at Barclays Private Bank, said in a note Thursday.
