After eight interest rate cuts, the European Central Bank is expected to keep them steady next Thursday and it remains to be seen whether its monetary policy relaxation cycle has closed or if there will be a further reduction by the end of the year.

The President of the ECB, Christine Lagardehe had hinted at a cessation of interest rates by the June meeting when he stated that the bank was in a good position to manage the uncertainties that exist.

A great uncertainty about the ECB is the outcome that will exist on tariffs. The threat of the US president, Donald Trumpthat it will increase tariffs on European Union products to 30% from August 1, if there is no trade agreement until then, it maintains and perhaps scaleing this uncertainty. It does not seem, however, that the ECB executives will change the view and thus the deposit rate will be kept at 2%.

Last week, the President of the BundesbankJoachim Nugel, said that ‘What is needed now is a stable policy’, stressing that they are ‘Extremely uncertain’ The impact of the trade war, as well as the geopolitical environment, on the inflation of the eurozone.

THE inflation in the eurozone has retreat to the target of 2%. The dramatic increase in money costs – the ECB increased interest rates by 4.25 percentage points in the two years 2022-2023 and then kept them steadily until mid -2024 – in conjunction with the energy crisis, led to anemic growth rates in the eurozone and retention of demand. The $ 12% appreciation against the dollar since the beginning of the year, due to the flight of investors from US assets after Trump’s trade war has also helped to reduce inflation, as well as reducing oil prices.

ECB services predicted in June that the inflation will remain close to target of 2% by 2027. The unfavorable scenario that trained – an increase in US duties from 10% today to 20% – would lead to even lower inflation – to 1.5% in 2025 and 1.8% in 2026 – compared to the basic scenario, in which the duties would remain at 10%. With the basic scenario, inflation would be 1.6% this year and 2% in 2027.

Trump’s warning of duties 30% is considered more negotiating threat Despite a realistic development, though there are many who believe that Trump can implement his threat. It would, however, be difficult to imagine that the EU could consent to such a high rate and proceed with a trade agreement. It is more likely that there will be an agreement with lower duties or that there will be no agreement and the European Commission will in turn impose tariffs on US products, which has made the preparation.

In the case of a trade agreement, the Chances of a new interest rate reduction of in the following months they seem to be shared And such a decision will be made if inflation recedes well below 2%. If there is no agreement, the chances of a new interest rate reduction will be greater to address the risk of a new slowdown or recession of the economy.