MNI ECB WATCH: ECB Cuts 25BP, As Tariffs Add To Risk

The European Central Bank cut its benchmark Deposit Rate by 25 basis points on Thursday for a sixth consecutive meeting, bringing it to 2.25% and removing the restrictive label from its policy statement, signalling a new phase characterised by uncertainty. (See MNI SOURCES: ECB Likely To Adjust Or Remove 'Restrictive')

“There will be many decisions and many implementations that will take place over the course of next weeks and months that will be decisive … in one direction or the other,” ECB president Christine Lagarde told a press conference on Thursday, noting that it was difficult to know whether the peak of uncertainty had been reached but that the ECB should “stand ready for the unpredictable”.

"Given the cloud of uncertainty that we have, the multiple decisions that are expected, or lack of it, our stance will have to be determined by two key attributes... readiness.... and agility”, she said.

Trade tensions are weighing on the ECB view on the euro area economy, seeing it as a potential demand shock increasing downside risk to economic growth, Lagarde said in the policy statement.

However, she said that “there are diverging views as to the short-term and the longer-term impact”, noting that a boost in defence and infrastructure spending coul also raise inflation over the medium term (See MNI INTERVIEW2: Trump Stagflationary For Eurozone-ECB's Wunsch)

UNANIMOUS, NOT ACCOMMODATIVE DISCUSSION

The decision of cutting to 2.25% was unanimous even if there were other options on the table including a 50bp cut that was discussed but nobody argued in favour at the last moment.

Asked by reports, Lagarde also said that the ECB did not discuss whether to enter accommodative territory or not in this meeting. “We rallied around the statement that we will take the appropriate monetary stance and decision to reach our target of 2%, sustainable over the medium term,” she said, adding that any assessment of the level of restriction in the euro area economy is “meaningless” at this point of time”, she added.

The ECB also changed its language regarding the importance “to rapidly establish the legislative framework to prepare tge ground for the potential introduction of the digital euro”.

Lagarde also mentioned it the once the press conference concluded as a final statement