Frankfurt: The European Central Bank looks set to keep interest rates unchanged on Thursday, while the prospect of higher US tariffs, threatened by US President Donald Trump, remains uncertain. A pause in rate adjustments would conclude a series of cuts that began in September of last year, aimed at addressing falling inflation. According to Bangladesh Sangbad Sangstha, the ECB has progressively lowered borrowing costs in response to inflation trends, with consumer price increases stabilizing around the bank's two-percent target following peaks due to the coronavirus pandemic and geopolitical tensions from Russia's invasion of Ukraine. However, the stability of current monetary policy is at risk, with an August 1 deadline approaching for Trump's possible imposition of punitive tariffs on European exports to the United States. In light of ongoing negotiations between Washington and Brussels regarding a potential tariff agreement, ECB rate-setters are anticipated to seek "more clarity... before considering an y further adjustment to monetary policy," as noted by UniCredit analysts. A pause in rate changes would allow policymakers to observe whether Trump enacts his threat of imposing a 30-percent tariff on EU exports, alongside existing levies on cars, steel, and aluminum. Following a sequence of seven consecutive cuts, bringing the benchmark deposit rate down to two percent from a previous high of four percent, the ECB is poised to maintain its current stance. "Neither the economic data nor latest data regarding price dynamics demand an immediate response from the ECB," stated Dirk Schumacher, chief economist at German public lender KfW. With eurozone inflation recorded at two percent in June and economic indicators like rising factory output suggesting economic resilience, the ECB is likely to keep some policy options available in response to potential trade escalations. A stronger euro, bolstered by investor moves amid tariff uncertainty, has surged almost 14 percent against the dollar since the start of the year. This currency strength, a result of shifting investor confidence away from US assets due to Trump's unpredictable policies, could influence the ECB's approach to maintaining a softer monetary policy stance. With the ECB predicting inflation to dip to 1.6 percent by 2026 before stabilizing at the target level in 2027, all eyes will be on ECB President Christine Lagarde's upcoming comments in Frankfurt for insights into future policy directions. As Lagarde previously indicated the nearing end of the ECB's rate-cutting cycle, the upcoming meeting will be crucial in determining how the central bank will navigate the potential challenges posed by international trade dynamics and currency fluctuations.
