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The European Central Bank has reduced its reference interest rate by a quarter to 2.25% while it is preparing for the economic benefits of the trade war ignited by US President Donald Trump.
The unanimous decision on Thursday by the BCE prices, which causes borrowing costs in the currency block at their lowest price On most American business partners on April 2.
“The growth prospects have deteriorated due to the increase in trade tensions,” said the ECB, adding that “the unfavorable and volatile response of the market” would probably have an “impact of tightening on financing conditions” for companies and consumers.
The president of the ECB, Christine Lagarde, underlined “exceptional uncertainty” confronted with the economy, while adding that inflation was on the right track to reach the 2% target of the bank.
“Exporters of the region in euros are faced with new obstacles to trade, although their scope remains clear,” she said, adding that “the disruption of international trade, financial market tensions and geopolitical uncertainty weighs on commercial investment”.
Analysts and asset managers in institutions such as Fidelity and Morgan Stanley said that the meeting was relatively dominant.
While the ECB said last month that monetary policy had already become “less restrictive”, it had abandoned the reference of Thursday’s declaration, Lagarde describing it as “meaning at this stage”.
THE ECBThis week’s reduction is the seventh reduction since it started to reduce its deposit rate last June.
“Don’t be mistaken, it marks a dominant change by the ECB”, Claus
VISESSEN. Chief economist in the euro area of ​​the Pantheon macroeconomics, wrote
in a note to customers.
Before the decision, Trump compared The BCE rate reduction file with the American federal reserve, which kept the rates pending during its last meeting in March.
Trump said that the president of the Fed, Jay Powell, who had warned the impact of prices on the United States growth and inflation, was “always too late and bad” on Wednesday and that “the end cannot come quickly enough!”
Asked about these comments, Lagarde said that she “had a lot of respect for Powell, whom she described as” my estimated colleague and friend “and underlined the” fundamental “principle of the BCE independence.
The merchants remained at their bets at least two cuts over a quarter more at the end of this year, and increased the chance of a third drop to around 60%, according to the levels involved by the Swaps markets.
“Recognition of the slowdown in inflation, while highlighting the risks to real activity is a strong signal [of further cuts]”Said Tomasz Wieladek, European economist in chief of the T Rowe Price asset manager.
The German bunds have rallied, the yield on bonds at two years sensitive to the rate, which passes inversely at a price, lowering 0.05 percentage points to 1.69%.
The euro was little changed to $ 1,137 in exchange after the reduction.
Lagarde said that the ECB knew that American prices were “a negative demand for demand” with “a certain impact on growth”, the impact on inflation would not become clear over time.
On the one hand, she said, a drop in energy prices, a higher euro and an increase in imports from China could reduce inflation. But, she added, fragmented supply chains could also increase the upward pressure on prices, as well as higher government expenses for defense and infrastructure.
Trump made a partial turnover last week, delaying his “reciprocal rates” of 20% on EU products for 90 days, during which a rate of 10% will apply. But the best central bankers claim that its protectionist policies are still probably a negative economic shock for the euro zone.
The ECB was already faced with slower cooling prices and pressures. In March, the central bank reduced its growth forecasts in 2025 for the euro zone to 0.9% – its sixth consecutive reduction.
Inflation dropped last month to 2.2% as the prices of services increased at their slowest rate for almost three years.
Economists say that inflation could be whispered further by the drop in oil prices for this month, the recent increase in the euro against the dollar and a potential increase in Chinese imports in the euro zone. The three developments are widely considered as consequences of Trump’s trade policy, at least in part.
But the increase in expenses financed by debt in Germany and elsewhere in the euro zone could prove to be inflationary pressure.
