ECB Holds Rates Steady amid Trade Tariff Uncertainty

The European Central Bank (ECB) left interest rates unchanged on Thursday for the first time in more than a year, as inflation settled at 2% and policymakers awaited clarity on ongoing trade tariff negotiations with the United States.

The ECB maintained its deposit rate at 2%, in line with the expectations of a vast majority of economists surveyed by Bloomberg. With uncertainty surrounding potential tariff levels, the bank offered no guidance on the direction of future policy moves.

“Inflation is now at the medium-term target of 2%,” the ECB said in its official statement. “The economy has shown resilience in a challenging global environment. However, the outlook remains highly uncertain, particularly due to ongoing trade disputes.”

The central question now is whether the ECB will resume its rate-cutting cycle, which has seen eight reductions since June 2024, or if the monetary easing campaign has reached its conclusion.

ECB President Christine Lagarde noted that the central bank is well-positioned to address not just trade tensions but also other structural challenges, including a stronger euro and anticipated increases in public infrastructure and defense spending.

Markets remain confident that at least one more rate cut is likely by year-end. Analysts surveyed ahead of Thursday’s decision anticipate a final 25-basis-point cut in September.

Following the announcement, bond markets held steady, with Germany’s 10-year yield rising by 3 basis points to 2.67%. The euro remained relatively stable, slipping just 0.1% to $1.1755.

Lagarde is expected to give an update on the economic outlook for the 20-member eurozone during a press conference in Frankfurt at 2:45 p.m. CET. In its previous meeting in June, the ECB warned that aggressive U.S. tariffs could significantly slow eurozone growth and drag inflation below target.

The ECB meeting comes just a week ahead of a deadline set by U.S. President Donald Trump for the European Union to finalize a trade agreement. While the EU has prepared a package of retaliatory tariffs that could have broad economic consequences, sources close to the talks remain cautiously optimistic about reaching a deal.

Diplomatic insiders say the two sides are narrowing the gap, with a proposed tariff range around 15% still under negotiation.