The ECB’s decision comes only a few weeks after the controversial “Day of Liberation” declared by US President Donald Trump on April 2nd, accompanied by blanket tariffs of 20% against numerous trade partners. Although these measures were suspended for 90 days, China was excluded. The economic impact of this protectionist policy is difficult to assess – for Europe, it poses significant risks to trade and growth.
The ECB stated that the disinflation process is “progressing well” but also emphasized that monetary policy direction will increasingly be data-dependent in the future. In a time of “unusually high uncertainty” they want to make decisions on a meeting-to-meeting basis.
The ECB President Christine Lagarde and the ECB Council are sticking to their course of gradual monetary easing since mid-2024. Inflation currently stands at 2.2%, close to the target value of two percent. Thus, the currency guardians see room to cushion the economic weakness through more favorable financing conditions.
The economy in the Eurozone is currently showing signs of fragile recovery. According to an S&P Global survey of purchasing managers, both the industry and the service sector experienced a slight upswing in March. Industrial production has risen for the first time in two years. Service businesses also performed better than in February – although at a low level. In the fourth quarter of 2024, Eurozone GDP growth was just 0.2%.
The ECB will likely have a harder time with further interest rate adjustments in the future. On the one hand, the decline in inflation calls for continued easing. On the other hand, new shocks from abroad loom: the US’s tariff policy, geopolitical tensions in East Asia and possible energy market upheavals cast long shadows over the economic development in Europe.
Nonetheless, the central bank remains determined to continue on the chosen course – with moderation, but also with a clear goal: price stability in the face of growing global uncertainties.
More on the topic – Why the Russian central bank is afraid of a “deterioration” of the economy.