Cautious sentiment spreads over interest rate cuts! ECB President warns of rising uncertainty, refuses to commit to a rate cut path

Due to the high uncertainty in trade relations, the European Central Bank (ECB) has refused to commit to a rate cut path, and market expectations for another rate cut in April have weakened.

According to media reports on Thursday, ECB President Christine Lagarde stated:

Although the deflation process is still "progressing smoothly," the Eurozone is particularly vulnerable to changes in tariffs, which undermines confidence in the ECB's forecasts.

Especially in the current context of rising uncertainty, we will adopt a data-dependent, meeting-by-meeting approach to determine the appropriate monetary policy stance, and we will not pre-commit to a specific interest rate path.

Previously, the ECB gradually lowered borrowing costs amid a trend of slowing inflation, with the latest 25 basis point rate cut this month bringing the deposit rate to 2.5%. However, due to trade tensions, uncertainties surrounding the Ukraine peace agreement, and the upcoming increase in European defense spending, it has become increasingly difficult to gauge when and whether further rate cuts will occur.

Although the market still leans towards the ECB cutting rates twice more this year, this uncertainty has weakened investors' confidence in whether April will see the seventh rate cut.

Currently, the cautious sentiment towards rate cuts is spreading globally, with the Federal Reserve maintaining interest rates on Wednesday, and the Bank of England is also expected to make the same decision later on Thursday. The key to the ECB's future decisions lies in whether fiscal easing can offset any damage caused by U.S. tariffs to the Eurozone's fragile economy, and how these two factors ultimately impact prices.

Lagarde cited an analysis from the central bank, which showed:

U.S. tariffs of 25% on European imports will reduce economic growth in the region by about 0.3 percentage points in the first year, and the EU's countermeasures will further increase this to about 0.5 percentage points. Meanwhile, the inflation outlook will become more uncertain.

Lagarde stated that in the short term, Europe's countermeasures and the weakening of the euro may increase inflation growth by about 0.5 percentage points. Since the beginning of this month, the euro has appreciated more than 4% against the dollar, raising speculation about a U.S. agreement aimed at deliberately weakening the dollar