Quite likely keeping 2% inflation will require some further cuts for fine tuning.Market pricing of one more cut or so not out of the realm of the baseline.Fine-tuning cuts will very much depend on how the economy develops.May at some point, not yet by any means, go into accommodative territory.Must be cautious about potential persistence of undershooting.We need to take care of those risks of a too persistent or large deviation from target.So far, seems deflationary effect of trade tensions could dominate, but final outcome open.June cut to ensure that inflation in 2026 eventually turns the corner and starts returning towards 2%.
The ECB continues to look very confident that the risk ahead is undershooting on their 2% target and assigns very little risk to renewed inflationary pressures. Hope for them that they are right.
This article was written by Giuseppe Dellamotta at www.forexlive.com.