ECB Likely to Stand Pat as Lagarde May Reiterate Downside Risks to Growth

According to Jinse Finance, the European Central Bank may opt to delay interest rate cuts in order to address economic risks arising from Trump’s tariffs. In their final decision before entering a seven-week summer recess, policymakers are likely to keep the interest rate at 2% on Thursday, maintaining this level until the tariffs are actually implemented and their impact can be more accurately assessed. However, policymakers are well aware that risks are looming: in addition to concerns over tariffs, a stronger euro is dampening inflation prospects and further squeezing exporters, while France’s public finance issues could be brewing a new political crisis. Against this backdrop, the ECB may internally acknowledge a rising likelihood of a rate cut in September. Economists at Morgan Stanley noted that, based on these factors, President Lagarde may reiterate in Thursday’s statement that growth risks are “tilted to the downside.” “We expect the committee’s language after the July 24 meeting to be similar to that of June, keeping the possibility of further rate cuts open but without making any commitments.” (Jin10)