According to the minutes from the monetary policy meeting held in early March, “the combination of American tariffs and retaliatory measures could present upside risks to inflation, particularly in the short term.”
“Furthermore, companies have also learned to raise prices more swiftly in response to new inflationary shocks,” adds the document from the March meeting.
The ECB Council, which lowered the key interest rates by a quarter point to 2.5% in March, is set to meet on April 16 and 17. However, it remains unclear whether they will opt to reduce the rates further or pause and maintain them at the current level.
At that time, the ECB considered that a significant increase in defense spending and other expenditures could drive prices up, potentially “derailing the disinflation process and keeping inflation elevated for longer,” as stated in the minutes.
In March, some members suggested that “being cautious in the face of uncertainty does not equate to being gradual in adjusting interest rates.” Others supported the rate cut in March but only if it avoided signaling further cuts or providing guidance on future decisions, the minutes reveal.
ECB President Christine Lagarde mentioned after the meeting that one council member abstained—Austria’s National Bank Governor, Robert Holzmann.
The minutes indicate that in March, the ECB Council already considered that both options should be on the table for the April meeting: a further rate cut or a pause.
Meanwhile, Donald Trump announced on Wednesday new 20% tariffs on imported goods from the European Union, in addition to the previous 25% tariffs on the automotive, steel, and aluminum sectors.
These new tariffs by Trump aim to bolster the U.S. industry while punishing countries for what he described as years of unfair trade practices. They were imposed by the United States on all imports, with additional surcharges for countries deemed particularly hostile to trade.
