ECB makes sixth successive rate cut – expect more | Australian Markets

The European Central Bank (ECB) has cut its coverage rate for the sixth time in succession because it responds to deteriorating growth prospects for the Euro space.

The ECB final week introduced cuts throughout its three goal rates of interest, with its fundamental refinancing operations, marginal lending facility, and deposit facility every taking a 25-basis level trim, decreased to 2.40%, 2.65% and a couple of.25%, respectively.

The pre-Easter break coverage rate resolution is the seventh cut this cycle, and marks the ECB’s sixth straight discount since June 2024.

The Central Bank in its resolution cited elevated financial uncertainty, which it says has “reduced confidence among households and firms”, whereas trade tensions have had a “tightening impact on financing conditions”.

“These factors may further weigh on the economic outlook for the euro area,” it mentioned.

Despite noting some positives, with the disinflation course of “well on track”, wage growth moderating, and the euro space financial system “building up some resilience against global shocks”, the choice to cut charges was not surprising, based on Principal Asset Management market strategist Christian Floro.

“Today’s decision to cut rates was expected given the swiftly deteriorating growth outlook amid rising trade tensions, which has now overridden much of the potential positive near-term growth factors, including a strengthening labour market and a stabilising business confidence,” wrote Floro in a latest evaluation.

He famous that whereas larger European defence spending and Germany’s appreciable fiscal infusion ought to raise Euro space financial growth subsequent yr, the financial backdrop “remains mired in uncertainty”.

Trade uncertainty trumps financial revival hopes

While noting the Eurozone’s efforts to construct up its resilience in opposition to world shocks, significantly the fiscal enlargement of its key economies, Floro mentioned draw back dangers stemming from trade coverage have stymied many of its growth prospects.

The Eurozone’s financial outlook is “clouded with exceptional uncertainty”, he wrote, triggered by the Trump Administration’s bellicose trade insurance policies.

Trump’s ‘Liberation Day’ tariffs, introduced on 2 April, imposed a 20% impost on items exported from the EU.

“This will likely inflict a meaningful demand shock to the euro area, and with inflation already more subdued of late its path will likely fall below target within the forecast horizon. Meanwhile, the appreciation of the euro and lower energy prices have added downside risks to inflation.”

This, Floro mentioned, has pressured the ECB to undertake a “more data dependent, agile approach” to its coverage choices, “keeping its options open as it assesses the combined impact of higher US tariffs and higher fiscal spending in Europe”.

Floro predicts that with inflation now close to focus on, mixed with the antagonistic impacts of elevated trade uncertainty on market circumstances and each firm and family confidence, additional rate cuts will probably be crucial this yr.

“Our expectation calls for 25 basis point cuts in June, July and September, bringing policy rates to 1.5% by the end of the year,” Floro concluded.