The ECB (European Central Bank) will be meeting on Thursday at 16:15 (GMT+4) and is widely expected to continue its rate cutting cycle.
Due to disinflation, a slowdown in economic growth, and tariff fears, the ECB faces a critical decision on whether to cut rates or hold steady.
The main refinancing rate is currently at 2.65%. After the meeting, ECB President Christine Lagarde will speak at a press conference which could give insights on how the Eurozone economy is expected to perform in 2025 and the impacts the global trade war may have on the region. ⁽¹⁾
The ECB’s moves shape how much it costs to borrow and spend, which will inevitably impact businesses and households. With trade tensions rising and slow growth looming, all eyes are on the ECB’s decision tomorrow.
What are the Markets Expecting?
- 25-basis point rate cut
- Reasoning behind the decision
- Commentary from President Lagarde
- Inflation outlook
- Growth outlook
The Economic Picture
Inflation has been declining in the Eurozone, hitting 2.2% in March, below the 2.3% figure analysts estimated. Core inflation, leaving out food and energy, slipped to 2.4% from 2.6%, inching toward the ECB’s 2% goal.
This drop has led to speculation from traders that another rate cut is on the table to give the Eurozone economy a boost. ⁽²⁾
In Q4 2024, the Eurozone economy expanded by 0.2%, and in 2024, it grew by 0.9% annually. Due to continued trade disputes that may affect investments and exports, 2025 GDP forecasts have been downgraded to 0.9%. ⁽³⁾
In addition, Q1 Eurozone PMI data presents a mixed picture. Manufacturing PMI increased from 47.6 in February to 48.6 in March, indicating a minor improvement but remaining below the 50 threshold, which denotes contraction.
Composite PMI, which accounts for both services and manufacturing, increased slightly from 50.2 in February to 50.9 points in March, pointing at a mild expansion. ⁽⁴⁾
Tariffs and Global Tensions
US tariffs are still challenging for the ECB. Trade fears have eased a little due to a 90-day pause from the US, but a 10% tariff threat still hangs over Europe.
This could hurt exports and slow growth even more, pushing the ECB toward a rate cut to soften the hit.
These factors have made some ECB members cautious and worried about inflation or growth surprises. The ECB says it’s “data-dependent,” so the latest figures will likely tip the scales, but a last-minute shift isn’t impossible. ⁽⁵⁾
The European Union has increased its defense spending, which could also refuel inflation. The ongoing global challenges may make it difficult for the ECB, as it is required to carefully manage monetary easing and the risk of inflation. ⁽⁶⁾
How Markets Might React
The Euro could weaken slightly as markets are widely expecting a 25-basis point rate cut, supporting European stocks and especially exporters. A more dovish ECB hinting at further rate cuts in 2025 could provide a lift to stocks and bonds, but a hawkish stance on tariff-related inflation risks may help bolster the Euro but weigh on equities. ⁽⁷⁾
Any surprises from the central bank or comments from President Lagarde during the press conference could trigger volatility across European markets and EUR pairs.
