ECB cautions on inflation risks, keeps April policy options open

European Central Bank officials expressed concerns that escalating U.S. tariffs and potential retaliatory actions from key trading partners could push inflation higher, particularly in the short term, according to the account of the March monetary policy meeting. They emphasized that trade disruptions could lead to increased import costs and supply chain bottlenecks, ultimately feeding into consumer prices.

ECB cautions on inflation risks, keeps April policy options open

Additionally, policymakers highlighted that rising government expenditures, especially on defense and broader fiscal stimulus measures, could add to inflationary pressures, further complicating the path toward the ECB’s 2% inflation target. Some officials cautioned that such spending could increase demand-side pressures, potentially prolonging the disinflation process and making it more challenging to justify monetary easing in the near future.

ECB precises on policy

Despite these risks, the ECB maintained that its revised policy statement should not be interpreted as a definitive signal for a rate cut or a pause in April. Policymakers acknowledged the growing uncertainty surrounding the effectiveness of current monetary policy, given that interest rates had already been significantly reduced. While some members pointed to continued signs of slowing core inflation, others stressed the importance of maintaining a data-dependent approach, with the option to implement further rate cuts if economic conditions deteriorate.

Eyes on inflation

Markets are now closely watching upcoming inflation reports, as well as ECB President Christine Lagarde’s upcoming remarks, for further clues on the central bank’s policy direction. Investors have priced in at least two quarter-point rate cuts this year, but concerns over persistent inflation and trade-related uncertainties may influence the ECB’s pace of easing.