FRANKFURT (Reuters) -European Central Bank policymakers are setting a high bar for an interest rate cut in September and they would need to see a significant deterioration in growth and inflation before backing further easing, two sources told Reuters.
The European Central Bank left interest rates unchanged on Thursday after cutting eight times in a year, biding its time while Brussels and Washington try to negotiate a trade deal that could ease persistent uncertainty over tariffs.
But sources at the meeting said that policymakers would not be spurred into action by the mere announcement of U.S. duties on European Union imports.
Instead, they would need to see an actual weakening in the inflation and growth data as well as lower projections from ECB staff in September if they are to back a rate cut.
An ECB spokesperson declined to comment.
While the discussion on Thursday was harmonious, a few policymakers wanted to send out a warning about inflation coming in lower than expected.
Instead, the ECB said that risks to economic growth were “tilted to the downside” while “the outlook for inflation (was) more uncertain than usual”.
ECB President Christine Lagarde hinted at this division, saying that, while the decision to keep rates on hold was unanimous, the risk assessment was “broadly shared”.
The sources said that policymakers mostly agreed on how the economy would behave in the ECB’s baseline scenario, in which the U.S. administration imposes a 10% tariff rate on European Union imports.
But they differed about the adverse scenario, in which the tariff rate is higher. Policy hawks, who favour higher interest rates, saw risks that inflation would get a boost from supply disruptions related to tariffs and possible retaliation.
Doves saw downside risks from slower economic activity prevailing.
Lagarde, who said her job was to present the view of the Governing Council rather than her own, listed both types of risks in her news conference.
(Reporting By Francesco Canepa, Balazs Koranyi and Reinhard Becker)
