ECB Signals Another Rate Cut Amid Growing Trade Tensions

Highlights:

• ECB likely to cut rates again as trade tensions from Trump’s tariff policy create new risks for the eurozone economy.
• Deposit rate has already dropped from 4% to 2.5% following six consecutive cuts since June last year.
• Inflation concerns ease, giving the central bank more flexibility to stimulate growth.

Trump Tariffs Add Pressure to Eurozone Outlook

The European Central Bank (ECB) appears poised to cut interest rates once again at its upcoming Thursday meeting, as fresh trade uncertainties from US President Donald Trump rattle investor confidence across the eurozone. Trump's recent imposition of 10% tariffs on all imports—framed by him as “Liberation Day”—has heightened concerns about slowing economic growth within the single currency bloc.

Borrowing Costs Likely to Ease Further

So far, the ECB has implemented six consecutive quarter-point rate cuts since June of last year, pulling its key deposit rate down from 4% to 2.5%. At the time of writing, inflation has eased to levels closer to the ECB’s 2% target, diminishing immediate concerns about overheating prices. This trend has given policymakers more room to consider another reduction in borrowing costs to support economic stability.

Pause No Longer an Option?

Following its March meeting, analysts widely believed the central bank would pause its rate-cutting streak. However, ING economist Carsten Brzeski noted that the recent escalation in trade tensions has changed that outlook. With global trade flows facing renewed disruptions and business sentiment weakening, pressure is mounting on the ECB to act preemptively.

Focus Shifts to Growth Support

While inflation once dominated the ECB’s agenda, the central bank’s attention has now shifted toward maintaining growth and investor confidence amid external shocks. The next decision will be closely watched by markets, as it may not only shape monetary policy in the eurozone but also influence global economic sentiment.

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