The European Central Bank (ECB) maintained yesterday July 24, stable the interest rates while the political leaders expected to see if the Eurozone would be affected by the highest US tariffs threatened by President Donald Trump.
The pause ended a streak of consecutive cuts since September 2024 and led to the ECB to reduce its reference deposit rate to 2.0 percent
The rapid reduction of indebtedness costs in the 20 members of the single currency block occurs at a time when inflation has retreated from the two -digit peaks of the late 2022.
Consumer prices in the eurozone increased at a rate of 2.0% in June, in line with the objective of ECB inflation.
Moderate inflation data and growth signals mean that the ECB is in a “good position,” said the president of the ECB, Christine Lagarde, at a press conference after the announcement of the fees.
However, perspectives remain “exceptionally uncertain, especially due to commercial disputes,” the Central Bank warned.
Commercial negotiations
A new escalation of commercial tensions could be a new blow to the eurozone economy, since Trump has set on August 1 as a deadline to impose a 30% basic tariff on the European Union.
Meanwhile the negotiations between Washington and Brussels to reach a commitment have advanced, which increases the hopes of reaching an agreement.
Lagarde refused to speculate on the outcome of the negotiations, but said that a resolution and a reduction in the uncertainty related to trade would be “welcome by all economic actors, including ourselves.”
The increase in tariffs, where its final destination is found, could “reduce inflation more than expected” if commercial tensions feed the strength of the euro against the dollar, he said.
A stronger euro would reduce imports and further stop inflation. The ECB already foresees that the indicator descends to 1.6% in 2026 before returning to the target in 2027.
Lagarde said the ECB monitors the impact of euro exchange rates on inflation, but added that the bank does not point to a particular exchange rate.
Inflation could also be reduced if a higher level of tariffs reduces the demand for European exports and drives “countries with excess capacity to redirect their exports to the euro zone,” he said.
On the contrary, an interruption of trade and global supply chains could boost a new price increase. And a resolution of commercial tensions could “improve trust and stimulate activity,” said Lagarde, which could relieve pressure on prices.
If inflation shows signs of weakening and economic data seem unstable, the Central Bank could opt for “a last rate cut at the September meeting,” said bank analyst Ing Carsten Brzeski.
