French Industrial Bank: Tariff storm clouds overhead, European Central Bank may cut interest rates by 50 basis points next week.

The French Industrial Bank released a research report stating that the European Central Bank may lower the deposit rate by 25 basis points to 2.25% at its meeting on April 17, and even does not rule out the possibility of a 50 basis point rate cut in order to more clearly exit its restrictive policy stance. The report points out that the tariffs announced by the United States may seriously harm market sentiment and economic activity, thereby increasing the downside risks to economic growth. Due to ongoing trade uncertainties, the European Central Bank may cut interest rates again in June and July. However, in the medium term, as fiscal policy shifts towards supportive measures, labor supply remains tight, and uncertainties ease, inflationary pressures may increase. Therefore, the French Industrial Bank expects the European Central Bank to raise interest rates for the first time by the end of 2026. The French Industrial Bank believes that compared to the European Central Bank's stance on tariffs in March, the signals after the April meeting will focus more on anti-inflation forces. This is due to factors such as global and U.S. economic growth slowdown, falling energy prices, and the strengthening of the euro against the dollar. ECB President Lagarde recently emphasized the importance of a clear policy response mechanism in stabilizing market volatility in a highly uncertain world. This indicates that the European Central Bank will continue to normalize its policies, thereby quickly exiting its restrictive policy stance. Although the stock market sell-off has raised concerns about financial stability, the French Industrial Bank believes that the situation so far does not constitute systemic market chaos that would require action from the European Central Bank. Currently, the ECB does not need to take any specific action in terms of quantitative tightening (QT) or liquidity supply. However, if market pressures persist for a longer period, the European Central Bank may need to consider slowing down or pausing its quantitative tightening plan.