The ECB should pause further interest rate cuts until at least September.We should keep out powder dry given the US-EU trade war.No reason to lower rates in June and July.Cutting further would be more risky than staying where we are now.Further rate cut would likely have no effect on economic activity.Economic activity held back by uncertainty rather than restrictive monetary policy.Borrowing costs have come down so much over the past year that they are no longer slowing down economic activity and are potentially even stimulating growth.A ‘number of people’ in the ECB Governing Council are also ‘skeptical’ about additional rate cuts.
Of course it’s no surprise that Holzmann delivers hawkish comments, but he has a point though. Economic activity kind of paused as the US trade war started and once things normalise (which is already happening), then you could get a strong bounce back in activity considering the insurance cuts delivered by the ECB. That’s a risk to keep in mind for the second half of 2025.
This article was written by Giuseppe Dellamotta at www.forexlive.com.