Standard Chartered analysts Christopher Graham and Saabir Salad suggest that the European Central Bank’s (ECB) April policy meeting presents a complex decision, with a potential for a 25 basis point rate cut. While their current baseline forecast anticipates a hold in June, they acknowledge increasing risks of a subsequent rate reduction, primarily driven by potential tariff impositions. The interplay between fiscal stimulus measures and uncertainties surrounding tariffs creates a range of plausible scenarios for future ECB policy decisions.
**Rationale for a Potential April Cut:**
Standard Chartered anticipates the ECB will likely implement a seventh consecutive 25 basis point rate cut at its upcoming policy meeting on April 17th. This expectation is supported by recent economic data, particularly the more significant-than-anticipated decrease in March services inflation. Furthermore, dovish statements from members of the Governing Council (GC) lend additional credence to this perspective.
**Countervailing Factors and the Possibility of a Pause:**
However, the recent announcement of a 90-day reprieve on reciprocal tariffs from the United States, issued on April 9th, introduces a degree of uncertainty. This development could empower some GC members with hawkish leanings to advocate for a pause in rate cuts.
**June Meeting and Future Policy Considerations:**
Should the ECB proceed with a rate cut in April, the June meeting may provide an opportunity to maintain the current rate, which currently serves as Standard Chartered’s base case. As the deposit rate continues to decline, the debate surrounding the neutral rate is expected to intensify. This will likely result in increased resistance from both hawkish and centrist GC members towards further easing without compelling economic justification.
**Impact of Trade Negotiations and Tariff Developments:**
The justification for further easing could materialize in the coming weeks, contingent upon developments related to potential US tariffs and the progress of US-EU trade negotiations. However, Standard Chartered acknowledges the inherent challenges associated with achieving a comprehensive trade agreement between the two entities.
