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ECB holds interest rates amid trade uncertainty - YAHOO FINANCE
BY LaToya Harding Business Reporter, Yahoo Finance UK
The European Central Bank (ECB) kept interest rates steady at 2% on Thursday, after seven consecutive cuts, amid trade uncertainty.
It comes as US president Donald Trump's threat to impose a 30% duty on EU goods exported to the US has pushed the governing council to contemplate lower outcomes for growth and inflation.
The central bank has already halved its policy rate from a record high of 4% in the space of a year after taming a surge in prices that followed the end of the COVID-19 pandemic and Russia’s invasion of Ukraine.
The hold puts a pause on seven straight cuts as it awaits confirmation on Europe’s trade relations with the US.
On Wednesday, two diplomats said that the EU and the US were heading towards a deal that would result in a broad tariff of 15%. The rate would mirror the framework agreement the United States struck with Japan, officials said in a brief to EU envoys on the talks.
Under the outlines of the potential deal, the 15% rate could apply to sectors including cars and pharmaceuticals and would not be added to long-standing US duties, which average just under 5%, Reuters reported.
It is believed there could also be concessions for sectors like aircraft and lumber as well as some medicines and agricultural products, which would not face tariffs.
"If the two sides indeed conclude such a deal, it would support our call that the euro zone economy can regain momentum from the fourth quarter onwards and that the ECB will not need to cut rates further," Berenberg economist Holger Schmieding said.
Last week, statistics body Eurostat revealed that eurozone inflation currently is sitting at the ECB's target, with the consumer price index (CPI) rising by 2.0% annually last month.
It was in line with expectations, but did marginally accelerate from the 1.9% recorded in May, which was an eight-month low.
Meanwhile core inflation, which strips out more volatile items like food and fuel, climbed 2.3% in the 12 months to June, matching the level seen the previous month — highlighting persistent underlying price pressures, particularly in services.
The lowest annual rates were registered in Cyprus (0.5%), France (0.9%) and Ireland (1.6%). The highest annual rates were recorded in Romania (5.8%), Estonia (5.2%), Hungary and Slovakia (both 4.6%).
Traders will now have their focus on the ECB press conference, due at 1:45pm UK time. Matthew Ryan, head of market strategy at financial services firm Ebury, said Lagarde was likely to repeat her message from June, when she said that policy was “in a good place”, and that the ECB was nearing the end of its cutting campaign.
He added: "At the same time, she is unlikely to close the doors to further rate adjustments, particularly as tariff escalation could have disinflationary implications for the Eurozone. In the ECB’s “severe” scenario, which assumes higher tariffs and increased trade uncertainty, the bank expects weaker price pressures, particularly in the longer term."
