European Central Bank to make ‘last Easy Rate Cut’ in the midst of the uncertainty of the rate

The European Central Bank is expected to reduce interest rates for the second time this year at its meeting on Thursday, but a disagreement can be established between those in charge of formulating policies to increase amid the tariff uncertainty and a possible increase in regional defense spending.

The markets had a total price on Wednesday in a reduction in the rate of a quarter point for the March meeting, carrying the key rate of the 2.5% ECB, below its peak of 4% in the middle of last year. An additional 2% reduction for the end of the year also had a price.

A relatively rapid rhythm of monetary relaxation has been expected in the last nine months, with the inflation of the Euro zone holders constantly below 3%, and economic growth remaining weak. The BCE Governing Council has almost always made its decisions unanimously and provided a relatively firm guide of its next steps to guide market expectations.

However, the Central Bank now appears at a moving distance from the “neutral rate” that is debated to which politics is not stimulating or restricting the economy, when the rates are expected to be kept waiting. Policy formulators do not agree on where this level is, and if the rates can be carried even lower than that level in response to factors such as low growth.

President of the ECB Christine Lagarde He told CNBC in January She believed that the range was between 1.75% and 2.25%, below its previous estimate of between 1.75% and 2.5%, but the ECB itself has not issued a firmer indication since then.

Bank of America’s global research analysts said in a Wednesday note that after this week’s meeting they expected a greater internal dispute between policy formulators.

“This is the last” easy ‘rates cut in our views, as disagreements grow, “they said. However, they reiterated an opinion before market expectations so that the ECB reduces 1.5% cut rates in September.

“The debate among the ECB policy formulators has increased in recent weeks,” said Goldman Sachs analysts, who said they expected the voting governing council to focus on the wide financial conditions, bank loans, commercial reports and loans indicate that the fees are still restrictive.

The United States has Rates released In their largest commercial partners that are expected to cause a slowdown in the global sectors, including automotive, but homework I could still be backing. The president of the United States, Donald Trump, said the European Union It will be next online for high tasks – However, the possibility of a negotiation also remains at stake. The impact of such tariffs would also be uncertain, with a slowdown in the trade of economic activity, but also potentially weigh the euro, which increases the cost of imports.

Meanwhile, European governments are preparing defense as Relations with the United States on the fracture of the Ukraine War.

Lagarde is likely to be questioned about the potential impact of the Agreement announced this week in Germany among the next expected coalition partners of the country. An agreement has not yet been completed on the reform of the rules of German debt, but it is expected to unlock a billion euros in expenses in defense and infrastructure, and the euro joined sharply in the news on Wednesday.

Rabobank analysts said that the earnings of the euro were “partly to the expectations that the space for more cuts in the ECB rates will be more confined,” with the reforms and the highest expense that provide the “promise of an elevation of economic growth.”

A broader movement towards the European rearme would represent “a fiscal expansion financed by debt that would stimulate economic activity, allow some reflection and make the ECB reconsider the scope of its policy rate cuts in the future,” Thierry Wizman, Global FX and Macquarie Strategy Tuesdays said Tuesday.

Despite all this uncertainty, some analysts do not expect the ECB to significantly update their guide on Thursday, which in January January Inflation was expected to converge towards the objective, monetary policy remains restrictive and that the Central Bank will continue its data dependent approach.

A particular approach will focus on whether the message that politics is “restrictive” alters, and if there is a suggestion that a rate retention can reach the next meeting in April.

“Given the unusual uncertainty created by the current political and geopolitical developments, we hope that the Governing Council of the ECB will be promoted this week due to the desire to maximize optionality on subsequent movements,” Citi analysts said Wednesday.

“We believe that this can translate into a more cautious communication, since it no longer states that monetary policy is restrictive. However, we would not read this as a sign that a pause in the flexibility process is probable that it will be coming.