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The European Central Bank has reduced its interest rate interest rate by a quarter point to 2.25 percent while preparing for the economic consequences of the trade warfare by US President Donald Trump.
Thursday’s unanimous decision by ECB rate determinants, which brings the cost of borrowing to the currency block in the lowest in more than two years, was widely received after Trump’s announcement of comprehensive fees in most US trading partners on April 2.
“The view of growth has deteriorated due to increased trade tensions,” ECB said, adding that “unfavorable and unstable market response” is likely to have a “coercive impact on financing conditions” for businesses and consumers.
ECB President Christine Lagarde emphasized the “extraordinary insecurity” facing the economy.
“Exporters of the Euro area face new obstacles to trade, although their goal remains unclear,” she said, adding that “breakdown in international trade, financial market tensions and geopolitical uncertainty are weighing business investments”.
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Reduce ECB this week is the seventh reduction since it began to cut the deposit rate last June.
Prior to the decision, Trump compared the record for lowering the ECB rate with the US Federal Reserve, which kept the waiting rates at its last meeting in March.
Trump said Fed President Jay Powell, who warned Wednesday about the impact of US growth and inflation, was “always too late and wrong” and “its end cannot come so fast!”
Asked about those comments about Powell, Lagarde said she “had a lot of respect for my famous colleague and friend” and emphasized the “fundamental” principle of ECB’s independence.
The traders stuck in their bets of at least two further cuts of the quarter by the end of this year, and delay the possibility of a third cut to about 50 percent, according to the levels implied by the exchange markets.
The German bundles gathered, with the yield of two-year-old rates sensitive to the rate, which moves in the opposite way, dropping 0.05 percentage points to 1.69 percent.
The euro was slightly changed to $ 1.137 in the trading after cutting.
Lagarde said that “increased global trade interruptions” also increased insecurity for inflation.
She said that while the ECB knew USA tariffs were “a negative
The demand shock “with” some growing impact “, the impact on inflation would only become clearer over time.
On the one hand, Lagarde said, the lowest energy prices, a stronger euro and increased imports from China can reduce inflation. But, she added, fragmentation of supply chains can also increase the increasing price of prices, as they could spend the highest government on protection and infrastructure.
Trump conducted a partial turn last week, delaying his full 20 percent EU goods “fees” for 90 days, during which time a rate of 10 percent will be implemented. But senior central bankers say his protectionist policies are still likely to be a negative economic shock to the euro area.
ECB is already facing the pressures of slow growth and cooling prices. In March, the Central Bank lowered its 2025 growth forecast for the eurozone to 0.9 percent – its sixth consecutive decrease.
Inflation decreased last month to 2.2 percent – marginally over the 2 per cent target of ECB – as service prices increased at their slowest pace for nearly three years.
Economists say inflation can be further driven by this month’s oil price, the latest euro growth to the dollar and a possible increase in Chinese imports in the eurozone. All three developments are widely seen as the consequences of Trump’s trade policy, at least in part.
But the increase in debt -funded expenses in Germany and elsewhere in the Eurozone can prove an inflationary pressure.
