ECB’s Simkus Signals Two More Rate Cuts as Trade Tensions Weigh on Eurozone Growth
In Washington at the IMF Spring Meetings, ECB Governing Council member Gediminas Simkus warned that Europe’s fragile recovery may require at least two further rate reductions this year. He pointed to U.S. tariffs and a surging euro as fresh headwinds slowing growth and driving down inflation.
H2 Simkus Predicts Further ECB Easing
Simkus confirmed that after the seventh cut to the deposit rate—now 2.25%—there remains “room to ease policy” without triggering financial instability. He noted that inflation is already decelerating and could fall further if global trade frictions persist.
“Given current data, I cannot rule out two more cuts this year,” Simkus told attendees, adding that only “more negative surprises” would prompt deeper reductions.
Markets have priced in these expectations: analysts at Bank of America forecast the deposit rate could drop by 1.25% by December, implying four additional quarter-point cuts.
H3 Tariff Fears and a Strong Euro Dampen Expansion
New IMF forecasts have trimmed eurozone GDP growth estimates, citing trade tensions and tighter financial conditions. Policymakers admit they were “overly optimistic” about the rebound, as sluggish wage growth signals cooling domestic demand.
Compounding woes, the euro’s recent rally has made exports less competitive, while U.S. tariffs on China have redirected goods to Europe, adding disinflationary pressure. Simkus expects June’s updated ECB projections to reflect weaker growth and slower inflation than before.
H2 ECB to Act Independently of U.S. Trade Deals
Simkus emphasized that the ECB will not wait on U.S. trade negotiations to adjust policy. While President Trump’s 90-day tariff truce aimed to spur deals, trade uncertainty is likely to endure.
“We’re focused on Europe’s data, not on U.S. ultimatums,” Simkus said, echoing other ECB officials who flagged soft manufacturing and weaker services as reasons to stay ready to cut rates.
With the next policy meeting in June, the ECB stands poised to deliver another quarter-point reduction if the economy fails to strengthen—keeping its cautious but steady easing on track.
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