Report: ECB officials tend to pause interest rate cuts in July, with some officials believing the rate-cutting cycle may have ended
Media reports citing informed sources indicate that European Central Bank officials are inclined to remain on hold in July due to the ongoing uncertainty surrounding Trump's tariff policy. However, the final policy will depend on the outcome of the US-EU trade negotiations on July 9, so the direction of the policy may still change. Additionally, ECB President Christine Lagarde hinted that the rate-cutting cycle may be nearing its end, leading to a cooling of market expectations for rate cuts
The European Central Bank may pause interest rate cuts in July, with uncertainty surrounding future rate cuts, one of the key variables being Trump's tariff policy.
On Thursday, June 5th, media reports cited informed sources indicating that after eight consecutive rate cuts, ECB officials are inclined to remain on hold in July due to the ongoing uncertainty surrounding Trump's tariff policy.
Some ECB officials believe that this round of rate cuts may have come to an end, while others support waiting until September for another cut. Informed sources stated that since July 9th is the deadline for US-EU trade negotiations, the policy direction may still change.
Trump's Tariffs as a Key Variable
On Thursday, the ECB lowered the deposit rate to 2%. ECB President Christine Lagarde stated at a press conference that current inflation is close to the 2% target.
Data shows that the eurozone's inflation rate fell below 2% for the first time in May, marking the first occurrence in eight months and the second since 2021. This has led ECB officials to increasingly believe that the task of controlling inflation is nearing completion.
However, Trump's tariff policy brings uncertainty, which not only undermines global confidence in the US but also casts a shadow over the global economic growth outlook.
Lagarde emphasized that the ECB's policy tools are "ready to respond" to the upcoming global trade and the uncertainties arising from the surge in European spending.
At the same time, Lagarde pointed out that the monetary policy cycle is nearing its end, a cycle that has been implemented to address the multiple shocks from the COVID-19 pandemic, the Russia-Ukraine war, and the energy crisis.
Following Lagarde's statement, market expectations for another ECB rate cut this year have cooled, with traders no longer fully confident that there will be another cut. The market reacted quickly, with the euro rising more than 0.6% at one point.
ING Chief Economist Carsten Brzeski stated:
"Unless global tensions escalate again after the 90-day trade pause ends, we expect the ECB to remain on hold throughout the summer."
