ECB expected to cut rates again as eurozone inflation eases in March
The sunset behind the European Central Bank in Frankfurt, Germany. (AP Photo/Michael Probst)
Euro area inflation fell again in March, with the latest figures from Eurostat set to inform the European Central Bank's upcoming interest rate decision this week.
Data released on Wednesday by the EU statistics agency found inflation across the 20-nation euro area fell to 2.2% in March, down from 2.3% in the previous month.
Ireland had one of the lowest inflation figures in the region, despite increasing somewhat notably to 1.8% from 1.4% in February.
France, Denmark and Luxembourg saw the lowest annual inflation rates, coming in at 0.9%, 1.4% and 1.5% respectively.
Eurostat's latest figures come as the ECB's governing council prepares to meet on Thursday, where it is largely expected to cut interest rates once again in response to heightened uncertainty in the era of tariff threats and impending trade wars.
The ECB is facing a significantly different situation from the last time it met, as Donald Trump's punitive measures become a reality that the regulator will quickly have to adapt to.
"Until recently, it appeared the ECB might pause its rate-cutting cycle in April after lowering rates six times in a row since last June," said Daragh Cassidy of Bonkers.ie.
"But given the likely blow to economic growth as a result of Trump’s tariffs, markets seem almost certain of another quarter-point cut."
A quarter-point deduction would bring the ECB's key policy rate down to 2.25%, and the rate at which tracker mortgages are priced down to 2.4%.
However, Mr Cassidy noted that there is still a small likelihood the ECB could hold rates steady given all the economic uncertainty at present.
"Trump’s tariffs could prove inflationary to the world economy, not just the US, given the complex global supply chains that exist.
"Major companies could also decide to share the cost of the tariffs across consumers in multiple regions so that the large American market doesn't take the full hit. Indeed, only the other day, Sony decided to raise its PlayStation 5 prices in Europe and the UK by between 10% and 11% while actually leaving them unchanged in the US.
"Markets seem to conceive that the ECB will slash rates several more times over the rest of the year. Potentially taking the key rate down to 1.5% or less. But if inflation begins to creep back up, that may be more difficult to do."
However, Michael Dowling, managing director of Dowling Financial, is more convinced of a rate cut, telling the : "The ECB will reduce interest rates by 0.25%... a sixth decrease.
"With the uncertainty in the markets following Donald Trump’s so-called “Liberation Day” tariff announcements, I predict further interest rate cuts, which will be faster than expected earlier in the year.
"Four more decreases are likely, and the benchmark rate for Tracker mortgage holders will fall to 1.65% by September.
"The ECB will be meeting tomorrow, June, July and September when the reductions will be announced."
Mr Dowling also noted that tracker mortgage holders will see a reduction of €13 per month for every €100,000 owed, which is welcome news to all 126,000 customers.
However, what is good news for mortgage holders may be less positive for savers, with Mr Cassidy noting that further deductions in ECB rates mean savings and deposit rates are likely to fall further.
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