It is expected that the European Central Bank will reduce interest rates for the second time this year at the Thursday meeting, but the dispute between decision -makers may be increased due to tariff uncertainty and the potential increase in regional defense expenses.
On Wednesday, markets fully valued the rate at the March meeting in a quarter reduction, increasing the key EBC to 2.5%-compared to the top by 4% in the middle of last year. Further reduction of up to 2% until the end of the year was also valued.
Over the past nine months, a relatively quick pace of monetary facilitation has been expected, and the eurozone header appears consistently below 3%, and economic growth will remain weak. The ECB management board almost always made its decisions unanimously and provided relatively strong guidelines for subsequent steps to conduct market expectations.
However, the central bank now appears in touching the distance from the hot “neutral rate” at which the policy is neither stimulating nor limiting the economy when the rates are expected to be suspended. Decision -makers do not agree exactly where this level is and whether you can require bringing rates even lower than this level in response to factors such as low gear.
President of ECB Christine Lagarde said CNBC in January She believed that the range was from 1.75% to 2.25%, compared to its previous estimates from 1.75% to 2.5% – but EBC itself did not give stronger tips.
Bank of America Global Research said in Wednesday's note that after the meeting this week they expected that they increased the internal dispute between decision -makers.
“This is the last” easy “reduction in the rate in our views, as disputes increased,” they said. However, they repeated the view from market expectations so that the ECB reduces rates to 1.5% to September.
“The debate among decision -makers from EBC has increased in recent weeks,” the Goldman Sachs analysts noted, who said that they expected that the voting council would focus on whether wide financial conditions, bank loans, business reports and loans indicate that the feet are still limited.
Issuing a journey
In the meantime, perspectives are darkened by many factors causing confusion in markets and the economy. Macroeconomic projections of ECB staff regarding inflation and growth, which will be issued on Thursday, will therefore be closely viewed, but they can be taken with a pinch of salt.
USA tariffs were launched on the largest trading partners who should slow down in global sectors, including motorization – but duties It may still be back. US President Donald Trump said the European Union will be next in the poem of high duties – However, the prospect of negotiations also remains in the game. The impact of such tariffs would also be uncertain, and a slowdown in trade that extends to business, but also potentially weighs the euro, raising import costs.
In the meantime, European governments are preparing It seems to defend How Relations from the USA regarding the fracture of war Ukraine.
Lagarde will probably be questioned on the potential influence Agreement announced this week in Germany between the expected next coalition partners of the country. The agreement on the reforming of German debt regulations has not yet been finalized, but it is expected that it will be unlocked to a trillion euro in the scope of defense and infrastructure expenditure, and the euro increases rapidly in news on Wednesday.
Rabobank analysts have stated that the euro profits were partly because of the expectations that the place for further cutting of ECB rates would be more limited, “with reforms and higher expenses they bring” the promise of growth of economic growth “.
Wider moving towards European murder would represent “fiscal extension financed from debts that would stimulate economic activity, would allow the reflection and would cause that the ECB will consider the scope of its reductions in the field of politics again,” said Thierry Wizman, Global FX and strategist rates on Macquarie on Tuesday.
Still restrictive?
Despite all this uncertainty January stressed It was expected that inflation coincides towards the target, the monetary policy remains restrictive, and the central bank will continue its approach depending on the data.
Particular emphasis will be placed on whether it changes the message that the policy is “restrictive” and whether there is a suggestion that the next meeting may stop the rate.
“Considering the extraordinary uncertainty created by ongoing political and geopolitical events, we expect that the ECB ruling council will be driven this week by the desire to maximize the optional option regarding subsequent movements,” Citi analysts said on Wednesday.
“We think that this may translate into more cautious communication, not claiming that monetary policy is restrictive. We will not read this as a sign that the break in the relaxation process is approaching. Changing geopolitics can ultimately generate fiscal policy reflex, but in the near future, they will probably increase the argument about fate. “