European Central Bank expected to cut rates again amid worries about Trump’s tariffs

Concerns about economic growth driven by the tariff actions of U.S. President Donald Trump are expected to prompt the European Central Bank to reduce interest rates on Thursday for a sixth consecutive time. This move aims to lower the cost of credit for businesses and consumers and stimulate economic activity.

During the previous meeting on March 6, ECB President Christine Lagarde had hinted at a potential “pause” in the series of rate cuts. However, this prospect was largely discarded on April 2 when Trump proposed new tariffs ranging from 10% to 49%, causing uncertainty in global markets.

Analysts anticipate a 0.25% reduction in the ECB’s benchmark rate to 2.25% at the upcoming meeting of the rate-setting council in Frankfurt. The bank has been gradually lowering rates after a period of rate hikes to address inflation concerns between 2022 and 2023. With inflation now under control, worries about economic growth have taken precedence.

The Eurozone economy expanded by a modest 0.2% in the final quarter of 2024, with inflation near the bank’s 2% target. Lowering interest rates can encourage spending, business investment, and hiring by making borrowing more affordable, supporting various sectors of the economy.

Although Trump has temporarily suspended the tariffs, the proposed rates could significantly impact business activities, potentially leading to slower growth or a recession if implemented. The uncertainty surrounding the final tariff rates could also hinder decision-making by businesses.

Despite expectations that some tariffs may be negotiated down to around 12% by mid-year, this rate remains substantially higher than pre-Trump levels. Additionally, a separate 25% tariff on auto imports from all countries could particularly impact Europe’s prominent auto industry.