The European Central Bank (ECB) is expected to announce its latest monetary policy decision on July 24, and investors widely expect that key interest rates will be kept on hold.
At its previous meeting in June, policymakers, prompted by signs of weakening inflation and slowing economic growth in the 20-nation eurozone, cut its main deposit rate by 25 basis points to 2%. It was the eighth cut in a year, although it came with indications that the ECB was likely to pause in July, particularly due to uncertainty over trade tensions with the United States.
US President Donald Trump threatened to impose 30% tariffs on imports from the EU last weekend, a move that was far harsher than the ECB had expected and worse than three negative scenarios it presented last month. The development has complicated the ECB’s decision-making process, but five ECB policymakers told Reuters that the move was not expected to derail plans to pause rate cuts next week.
This means the ECB will have to recalculate its estimates and policymakers will have to consider a worse-than-expected outcome in June, according to five sources who are also members of the ECB’s Governing Council.
Erste analysts said that if the White House goes ahead with plans to raise tariffs on the EU that would cover many eurozone countries by the August 1 deadline, the EU would likely retaliate.
The European Commission, which is leading the negotiations on behalf of the EU, is reportedly ready to target €72 billion worth of American goods, including bourbon whiskey and Boeing aircraft.
EU trade chief Maros Sefcovic is in Washington this week for talks with Trump administration officials, with just weeks to go before the August 1 deadline and European lawmakers warning of the potential negative impact on economies on both sides of the Atlantic.
Erste analysts said they expect the EU to avoid an escalation of the trade dispute with the US, giving the eurozone economy room to recover in the coming quarters thanks to earlier rate cuts and fiscal measures being considered by regional governments.
"In these circumstances, the ECB has no reason to continue cutting interest rates in the near future," the analyst argued.
