Tariff waves impact economic prospects, European Central Bank expected to cut interest rates again on Thursday.

After the imposition of tariffs by US President Donald Trump impacting the market and dampening economic prospects, the European Central Bank (ECB) is set to conduct its seventh interest rate cut. A survey by Bloomberg of analysts shows that almost all respondents expect the ECB to cut the deposit rate from 2.5% to 2.25% on Thursday. Among the 62 respondents, only one expects rates to remain unchanged, while another believes the cut will be larger. The introduction of large-scale US trade tariffs has disrupted discussions around pausing the monetary easing policy started in June last year by the ECB. The market expects Trump's tariff measures to suppress economic expansion rather than trigger inflation, leading to a belief that European borrowing costs will decrease once again. Following this Thursday's interest rate meeting, investors expect at least two more rate cuts by the end of the year, as a stronger euro helps to contain price pressures and the risk of low-cost Chinese goods being redirected to Europe increases. As trade negotiations continue, ECB President Christine Lagarde is unlikely to give a clear indication of the next steps in interest rates. She will hold a press conference 30 minutes after the ECB announces its rate decision, at 8:45 pm Beijing time. Interest rate policy After the rate cut in March, ECB officials have kept various policy options open, with plans for increased public spending in Germany and other countries providing more grounds for caution. Sources involved in the meeting revealed that this week's meeting considered cutting rates or keeping them unchanged. However, Trump's "liberation day" statement changed the economic outlook, prompting stronger support from French central bank chief Francois Villeroy de Galhau, Finnish central bank chief Olli Rehn, and Lithuanian central bank chief Gediminas Simkus for further monetary policy easing. Nevertheless, a minority of officials are calling for caution. Austrian central bank chief Robert Holzmann said he sees no reason for a rate cut, but also acknowledged he is "always willing to listen to robust arguments." While the deposit rate is most likely to remain at 2%, the turbulent backdrop has led to various views on the issue. Bloomberg's latest survey gives a rate range of 1.25% to 2.25%, with over a fifth of economists even predicting the first rate hike by the end of 2026. Economic outlook The optimism about Germany's infrastructure spending in the hundreds of billions of euros, as well as a broader European rearmament plan, that was expected to rejuvenate the struggling European economy, has now been overshadowed by pessimism as tariffs may erase much of this year's growth hopes. Dutch central bank chief Klaas Knot emphasized the complexity of the situation, stating that the impact of tariffs will evolve over time, and the ECB must "remain vigilant." A key question for Germany's fiscal plans is how quickly funds can be put to use and how this will affect inflation. A group of leading German economists have just lowered their expectations for economic growth this year, projecting that positive growth effects may not materialize until 2026. David Powell, senior eurozone economist at Bloomberg Economics, said, "The situation the ECB faces is very different from the last meeting, as US tariffs have become a reality and the eurozone monetary policy must adjust. We expect the ECB Governing Council to cut rates by another 25 basis points on April 17th, and further ease monetary policy later this year." As for tariffs, some recent dynamics since Trump's announcement of tariffs show greater downside risks for European inflation. The euro has appreciated against the dollar, and the response from the European Commission has not led to any retaliatory tariffs that would push up import prices. "Restrictive" policies One issue troubling ECB officials is whether their policy stance is still dampening economic activity. Last month, the ECB adjusted its language in its post-meeting statement, stating that the degree of policy "restriction has significantly decreased." This leaves room for further monetary policy easing while acknowledging progress has been made in adjusting monetary policy. Another rate cut would place borrowing costs more clearly within the estimated range of the so-called neutral rate, which neither hinders nor stimulates economic growth. Further adjustments in language or the removal of this statement are possible. However, in a world that requires constant adaptation to changes, the ECB may be unwilling to give such a clear signal.