ECB POISED FOR INTEREST RATE CUT AMID GROWTH WORRIES AND US TRADE TENSIONS
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By Aishat Momoh. O.
The European Central Bank (ECB) is widely expected to cut interest rates this week as it grapples with weakening growth in the eurozone and mounting uncertainty from renewed trade tensions with the United States.
The anticipated move comes as inflationary pressures ease across the 20-nation euro area, shifting the ECB’s focus toward propping up economic activity hampered by high borrowing costs and global trade instability.
At its governing council meeting on Thursday, the Frankfurt-based institution is forecast to reduce its key deposit rate by 25 basis points to 2 percent. This would mark another step in a series of rate cuts aimed at stimulating lending and investment after inflation briefly exceeded the ECB’s 2 percent target in April.
According to analysts at HSBC, recent US tariff announcements and related geopolitical tensions have significantly dampened the eurozone’s near-term outlook. “The ECB will need to act to offset the negative sentiment from Washington’s protectionist policies,” the bank said in a note.
However, many observers believe the June cut could be the last for now, with the central bank likely to pause at its next meeting in July to assess updated economic data.
The ECB is also expected to revise its inflation and growth forecasts downward on Thursday. The revision follows last month’s decision by the European Union to slash its own economic projections due to ongoing trade uncertainties.
Meanwhile, ECB President Christine Lagarde is expected to provide limited guidance about future moves, with analysts citing the unpredictable impact of US tariffs and a complex global outlook. Lagarde recently described the global economic order as “fracturing,” warning that multilateral cooperation is being replaced by “zero-sum thinking and bilateral power plays.”
Speculation about Lagarde’s future also emerged after former World Economic Forum chairman Klaus Schwab reportedly discussed a potential leadership role for her. The ECB has since dismissed the rumours, affirming that Lagarde remains committed to completing her term.
The ECB’s dovish stance stands in contrast to the US Federal Reserve, which has kept interest rates steady amid concerns that additional tariffs imposed by President Donald Trump could reignite inflationary pressures in the US.
Trump’s escalating trade measures including a potential 50 percent tariff on EU goods, currently delayed until July 9, have deepened fears of a global economic slowdown and disrupted market stability.
As the ECB prepares to announce its latest monetary policy decision, Eurostat’s May inflation estimate, set for release on Tuesday, will offer further insight into price trends across the eurozone. Analysts expect the report to confirm that inflation is easing, reinforcing the case for a rate cut.
While the ECB continues its delicate balancing act between stimulating growth and maintaining price stability, all eyes will be on Thursday’s announcement for signs of how the central bank intends to navigate the volatile global economic landscape in the months ahead.
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