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ECB Signals Rate-Cut Pause After Eighth Reduction, Weighing Trade Shock Risks

Policymakers debate responses to below-target inflation, with U.S. tariffs raising the risk of fresh price rises

Joachim Nagel, President of the Deutsche Bundesbank speaks at an event in Central Bank of Cyprus in Nicosia, Cyprus November 28, 2023. REUTERS/Yiannis Kourtoglou/File Photo
Jose Luis Escriva, new Governor of the Bank of Spain, delivers his first speech at the Bank of Spain headquarters in Madrid, Spain, September 24, 2024. REUTERS/Susana Vera/File Photo
Croatia's central bank governor Boris Vujcic speaks during an interview with Reuters in Zagreb, Croatia, January 21, 2016. To match CROATIA-CENBANK/  REUTERS/Antonio Bronic/File Photo
A view shows the logo of the European Central Bank (ECB) outside its headquarters in Frankfurt, Germany March 16, 2023. REUTERS/Heiko Becker/File Photo

Overview

  • The ECB lowered its deposit rate to 2% in its eighth cut this year and signalled a pause next month to assess the growth and inflation outlook.
  • Euro-zone inflation was 1.9% in May, below the 2% goal, and is projected to ease to 1.6% next year, prompting concerns among some officials that it could slow too much.
  • Croatia’s central bank governor Boris Vujcic urged against overreacting to small deviations from the target, arguing prices will rebound as energy costs stabilise.
  • ECB policymaker Isabel Schnabel warned that President Trump’s tariffs could act as a global shock by lifting producer prices and feeding through to consumer inflation.
  • The bank has launched a long-term strategy review to reconsider the role of quantitative easing and other monetary tools for managing future inflation challenges.