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ECB’s April policy meeting could be a close call, but we lean towards a 25bps cut. For now, our base case is a June hold, but we see growing risks of another cut given tariff threats. Fiscal stimulus and tariff uncertainty means various scenarios for ECB policy are plausible, Standard Chartered’s analysts Christopher Graham and Saabir Salad note.
Offsetting risks – tariffs versus fiscal
“We expect the European Central Bank (ECB) to deliver a seventh consecutive 25bps rate cut at its policy meeting next week (17 April). Recent economic data – notably the larger-than-expected decline in March services inflation – and dovish comments from Governing Council (GC) members lend weight to this view. However, the announcement of a 90-day reprieve on US reciprocal tariffs on 9 April means a cut is far from guaranteed, as some GC hawks could now push harder for a pause.”
“If the ECB cuts next week, then the June meeting could offer an opportunity to hold, which for now is our base case. The debate around the neutral rate will become starker as the deposit rate falls further, with both hawks and centrists becoming more resistant to further easing without a clear economic justification. However, that justification could build over the coming weeks depending on any further US tariff developments and the progress (if any) of US-EU trade negotiations by that point; we wrote yesterday on the difficulties associated with reaching a broad trade deal.”
“However, by the June meeting we should also have greater clarity on Germany’s fiscal stimulus plans, as well as broader defence spending increases across the EU; updated ECB macroeconomic projections should reflect the growth and inflation implications of both. The degree of economic uncertainty is clearly elevated, and the combination of upside risks from fiscal stimulus and downside risks from tariff uncertainty means that various scenarios for ECB rates remain plausible; we expect this to be reflected in Lagarde’s comments during the press conference.”
