By Francesco Canepa
WASHINGTON (Reuters) – European Central Bank (ECB) policymakers are increasingly confident about cutting interest rates in June as inflation continues to decline, but there is little appetite for a significant move, according to six sources.
ECB governors convening in Washington for the International Monetary Fund and World Bank’s Spring Meetings assessed a weakening economy in the euro zone and globally, exacerbated by uncertainties from tariffs imposed by U.S. President Donald Trump that dampen investment.
Recent euro zone data indicated stalling business growth and anticipated pay hikes easing significantly.
Importantly, the 20% tariff provisionally set by Trump on European goods was less severe than anticipated by the ECB, and the risk of retaliation from the European Union has been avoided so far.
As a result, many governors are now seeing increasing chances for an eighth quarter-point cut during their June 4 meeting, at which the ECB will revise its economic forecasts. Earlier this month, the ECB lowered its benchmark rate to 2.25%.
While the ECB’s official stance is open-minded, the decision is over a month away, and economic policy has become unpredictable since Trump’s announcement on April 2.
An ECB spokesperson refrained from commenting.
Trump’s actions have shaken investor confidence in the U.S. economy and its global safe-haven status, resulting in falling fuel prices and a weaker dollar against the euro, which has increased disinflationary pressures in the euro zone, alleviating fears of high price growth becoming entrenched among some hawkish ECB Governing Council members.
The long-term outlook remains unclear due to the possibility of a more fragmented world, cheaper imports from China, and stronger domestic demand from Germany’s fiscal spending plans creating mixed influences.
Thus, policymakers stated there is currently no reason to contemplate a more significant 50-basis-point cut, as it might unnecessarily alarm market participants.
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