FRANKFURT (Reuters) – European Central Bank policymakers see a growing chance of a pause in their easing cycle at their next meeting before rates come down again, once they have greater clarity about trade and fiscal policy, four sources told Reuters.
The ECB cut interest rates as expected on Thursday but President Christine Lagarde refused to repeat her past message that the direction of travel towards lower rates is clear, causing some confusion among investors.
The sources who spoke to Reuters after the meeting said they saw an April pause as a distinct possibility, which some of them discussed informally during the breaks of their two-day meeting.
But the sources, who represent both the dovish and hawkish camps in the Governing Council, agreed that the ECB was unlikely to leave its deposit rate at 2.5% and more cuts were warranted, at least based on information available today.
An ECB spokesperson declined to comment.
Key variables included trade policy. If the United States imposed tariffs on the European Union, that raised the chances of more cuts, potentially even starting in April, some of the sources said.
On the other hand, retaliation by the EU would blur the picture, raising the risk of stagflation.
On the flipside, if Germany were to push through with its proposed military and infrastructure spending plans, that would raise growth and inflation and make a cut in April less likely.
The sources added that the final wording of the ECB’s new guidance, that rates were “meaningfully less restrictive” was a result of a compromise in the lead-up to the meeting.
Some had wanted to maintain a previous reference to policy being “restrictive”, meaning that rates were high enough to curb economic growth. Others argued for removing that word.
(Reporting By Balazs Koranyi, Francesco Canepa and Frank Siebelt)
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