– The euro area builds immunity against global shocks, but the prospect of growth has deteriorated due to increasing trade voltages. Increased uncertainty will probably reduce trust among companies and households, and the negative and unstable response of the market will probably have tightening the influence on the terms of financing – Lagarde said after a meeting of the ECB CEOs Council, during which interest rates were reduced – as expected – by 0.25 percentage points.
In her opinion, these factors may affect economic prospects for the euro area. At the same time, the head of the Central Bank of the EURO zone assured that the ECB remains determined so that inflation would stabilize in a sustainable manner at the level of a medium -term target 2 percent.
She noted that the influence of duties on inflation is still unclear and will become clear only over time. – Growing voltages in global trade increase uncertainty about inflation prospects in the euro area. Globally falling energy prices and euro appreciation could bring pressure down to inflation. This could be strengthened by lower demand for export from the euro area due to the higher duties and redirecting exports to the euro area from countries with a surplus of (production) abilities – said Lagarde.
She added that on the other hand, inflation may be conquered by an increase in defense and infrastructure expenditure in Europe, and possible weather events can also increase food prices.
Lagarde indicated that the ECB's message was removed “restrictive” for interest rates, because it was needed in the past, when inflation was far from the goal, but at that moment it is “irrelevant”.
The President of EBC emphasized that now The bank will keep all open optionsWhen it comes to your approach, and the decisions will be made “meeting after the meeting” depending on the received data.
In her opinion, EBC must remain “agile” and watch out for new shocks, but the bank's new approach still requires defining. She informed that the Thursday decision of the ECB members to reduce interest rates by another 0.25 percentage points. She was unanimous.
This is the fifth reduction in a row. The cycle began with loosening in June 2024, followed by Pause in July. Later, EBC alleviated politics at almost every meeting. In total, in this series, the Frankfurt institution reduced the refinancing rate by 2.10 percentage points, and the deposit by 1.75 percentage points. From now on, the deposit rate will be 2.25 percent, and the rate of basic refinancing operations 2.40 percent. These are the lowest levels in two years.
“The decision, message and the course of the conference are not a major surprise. Therefore, we are waiting for further data and events related to trade policy in the world. The next ECB meeting will take place on June 6. We will then learn new macroeconomic forecasts for the euro area, which will shed more light on economic perspectives and the potential impact of changes in the global customs policy, “wrote the economists of Bank Millennium.
Currently, financial markets value that this year ECB will reduce interest rates by about 0.50 percentage points, to 1.75 percent. “We set a target level in our scenario this year at 1.50 percent, because, in our opinion, The unique surroundings of the European economy will require slightly accommodating (in the sense of supporting activity – ed.) attitudes in the monetary policy of the currency union ” Bank Millennium experts added.
