ECB Holds Steady Amid US Tariff Uncertainty

The European Central Bank is anticipated to maintain its current interest rate Thursday, as it gauges the potential economic impact of increasing US tariffs. Since June last year, the ECB has slashed rates eight times to stimulate growth, following a temporary hike to curb inflation driven by geopolitical tensions and the pandemic recovery.

Currently, with the benchmark rate at 2 per cent, analysts suggest one more rate reduction could happen, possibly this September. The uncertainty stems from ongoing negotiations between the EU and the Trump administration, which initially proposed a 20 per cent tariff on EU goods, threatening escalations up to 50 per cent, before a potential compromise.

The ECB's decision to hold rates steady is seen as a prudent move amid speculations over tariff negotiations. Financial markets' muted response to US tariff threats suggests expectations of lower rates compared to initial threats. Additionally, the ECB's actions have supported economic activities, with growth reaching 0.6 per cent and inflation now aligned with targets at 2 per cent in June.

(With inputs from agencies.)