The European Central Bank (ECB) is set to cut rates again on Thursday, but investors are increasingly unsure about the path forward. With U.S. tariff risks intensifying, the ECB may need to grapple with their impact, as well as a potential Ukraine ceasefire and an expected surge in defense spending.
Key questions surround the ECB’s decisions, including what rate cuts will come next and how the bank will assess the impact of tariffs on Europe. Policymakers are increasingly divided on the pace of rate cuts, with some governors pushing for a pause in April.
The ECB is also likely to provide updates on the fallout from last week’s payment systems outage. Markets expect around 80 basis points of rate cuts by year-end, but traders anticipate uncertainty and a bumpier path ahead.
A Ukraine ceasefire is expected to have a modest impact on the economy and energy prices, but will not significantly alter the ECB’s thinking. The bank’s latest projections are likely to show lower growth at the end of 2024 and a small upward revision in energy prices for this year.
The uncertainty surrounding these issues raises questions about the ECB’s ability to navigate these challenges effectively. With markets increasingly divided on the pace of rate cuts, the ECB must balance its commitment to monetary policy stability with the need to address growing economic concerns.
Source: https://www.reuters.com/markets/europe/tougher-calls-ahead-five-questions-ecb-2025-03-03