Trump Tariffs Spark Global Central Bank Rate Cuts – Could the ECB Cut Rates 10 Times in Two Years?

TradingKey - Under the threat of U.S. President Donald Trump’s aggressive tariff policies, global central banks have been forced to reconsider their monetary policy stances. 

Following interest rate cuts by the Reserve Bank of New Zealand and the Reserve Bank of India, the European Central Bank (ECB) also cut rates for the seventh time in its easing cycle, citing concerns that U.S. trade policies could weigh on economic growth. Meanwhile, both China and the U.S. are contemplating further easing measures.

On Thursday, April 17, the ECB announced a 25-basis-point reduction in its deposit facility rate to 2.25%, in line with expectations. The refinancing rate and marginal lending rate were lowered to 2.4% and 2.65%, respectively. This marked the ECB’s seventh rate cut since June 2024 and its seventh consecutive cut over eight meetings.

ECB President Christine Lagarde stated that the significant escalation of global trade tensions and associated uncertainties could dampen exports, thereby slowing growth in the eurozone and weighing on investment and consumption.

In addition to concerns about growth, the ECB's decision to cut rates was also driven by the eurozone's inflation trajectory, which is gradually moving closer to the central bank's 2% target.

Some analysts noted that while a recession may not be the baseline forecast, if such a scenario materializes, the ECB would need to respond with more forceful measures.

The ECB is not alone in adopting precautionary rate cuts amid tariff threats. Both the Reserve Bank of New Zealand and the Reserve Bank of India cited tariff risks when they cut rates earlier in April.

The Reserve Bank of New Zealand noted that the full impact of higher tariffs would take time to ripple through the global economy. However, the effects of rising prices due to tariffs, coupled with weaker global demand caused by heightened uncertainty, could manifest more quickly.

Meanwhile, the People’s Bank of China recently signaled plans to cut interest rates and reserve requirements at any time. U.S. President Trump, facing mounting economic pressures, launched three attacks on Federal Reserve Chair Jerome Powell on the same day, calling for immediate rate cuts and even threatening to remove Powell from his position prematurely.

Unlike most central banks, Japan is in a tightening cycle. However, to mitigate the impact of tariffs, Japanese authorities are considering direct cash subsidies to households to cushion the effects of faster-rising prices.

Market participants have increased bets on further ECB rate cuts, with expectations that there could be two or three more cuts this year. In contrast, just last month, traders were pricing in the possibility of the ECB tightening its easing cycle and raising rates in 2026, as Germany embarks on historic fiscal reforms that could boost inflation and stimulate the economy.

Under the most optimistic rate-cutting scenario, the ECB could implement up to 10 rate cuts cumulatively in 2024 and 2025. Analysts at Pictet Wealth Management suggested that it is now conceivable for the ECB to cut rates by 100 basis points this year.