Europe | The ECB, waiting for Trump to close the cycle

Summary

The most interesting thing about last week’s ECB meeting was not the decision made, but the promise of hints as to what it might do next. Ultimately, the 25-basis point cut in the main reference rates had already been widely priced in by analysts and markets.

Key points

• Key points:
• The deposit rate remained at 2%, which could very well signal the point of arrival of this cycle of rate cuts.
• The ECB has lowered its inflation forecasts to 2% in 2025 (from 2.3% in its last forecast, in March) and even to 1.6% in 2026, although Lagarde has cautioned that this further decline is only temporary (due to energy and the euro effect).
• She also remarked that it would return to 2% in 2027, but made no mention of further rate cuts. Core inflation forecasts (1.9% in 2006 and 2027) are right where they need to be to meet the target.
• The ECB has barely changed its GDP growth forecasts for the eurozone (0.9% this year, 1.1% next year), which happen to be very similar to those of BBVA Research, although a more negative scenario of negotiations with the United States, ending with tariffs of around 20% for the EU, would knock around 5 tenths of a percentage point off the region’s growth tally in 2025 and 2026.
• Everything points to a pause in the rate cuts at the July meeting, and if there are no surprises in the tariff negotiations, we may see no further cuts at all. Everything will ultimately depend on the tariff negotiations with the United States, which will not be easy and will keep uncertainty extraordinarily high.

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