ECB ready to announce a new interest rate cut today – What’s next

The European Central Bank is expected to cut interest rates again at its meeting today (Thursday), with officials keeping all options open for the next few meetings as the likelihood of a pause in expansionary policy in the summer increases.

If the forecasts are confirmed, it would be the eighth rate cut in 13 months as the ECB tries to shore up a Eurozone that remains sluggish despite a clear deceleration in inflation.

Inflation stabilization and signs of a pause

With inflation now at a safe distance from post-pandemic highs and within the 2% target, a further decline to 2.0% is taken for granted. The focus now shifts to future messages from ECB President Christine Lagarde on the direction of policy.

Markets are already discounting a pause in July, while several more conservative central bankers are openly advocating a “pause” to reassess the risks from uncertainty in trade relations and political developments inside and outside the eurozone.

Although Lagarde may avoid clear statements, sticking to the “flexibility per meeting” line, the trend for a temporary suspension of the cut is strengthening. The rationale rests on the fact that the eurozone’s short- and medium-term outlook may diverge significantly.

While in the first year inflation may fall back, even below the 2% target, it is expected to recover in the future due to increased public spending and trade disputes. At the same time, monetary measures take 12-18 months to take full effect, with the risk that current interventions will strengthen an economy that will no longer need support