European Central Bank Expected to Make Sixth Rate Cut as Policy Debate Intensifies

The ECB is projected to lower its key interest rate to 2.5% on Thursday, with growing uncertainty over trade tariffs and increased fiscal spending influencing future decisions.

• The European Central Bank is widely anticipated to announce a 25 basis point rate cut, bringing the deposit rate to 2.5%, marking its sixth reduction since June 2024.
• President Christine Lagarde is expected to maintain a cautious stance, avoiding firm guidance on future rate decisions due to heightened geopolitical and economic uncertainties.
• German plans to increase defense and infrastructure spending by hundreds of billions of euros have raised concerns about inflation and may limit the scope for further rate cuts.
• Uncertainty surrounding potential U.S. tariffs on EU goods, as threatened by President Donald Trump, is adding pressure to the ECB's monetary policy outlook.
• Policymakers are divided over whether rates are nearing the 'neutral' level that neither stimulates nor restricts growth, with some advocating for a pause in the easing cycle.

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