In the autumn the European Central Bank (ECB) will review the level of interest rate to make decisions about the possibility of further reduction.
At its next meeting in July, the waiting attitude that the ECB will have after the consecutive reductions made in the interest rates in the past, will be at 2% today while inflation is running at 1.9%.
European sources confirm this tactic to be followed by Frankfurt, which has repeatedly said that the main objective was to achieve the neutral level of interest rates which has set at 2%.
The critical factors expected to take into account decisions on interest rates after the summer cessation are the development of negotiations between the European Union and the US on the amount of duties announced by US President Donald Trump as well as developments in the US.
The ECB will wait to see the level at which US duties will rise to European products to evaluate their impact on the European economy.
The latest figures that showed that the eurozone was developed at a rate of 0.6% in the first quarter of the year, are intense optimism as it was better than the original forecasts. However, growth remains anemic and vulnerable in a period of intense geopolitical and economic tensions that could induce the positive course.
With these data, the imposition of high duties on European products from the US would cause significant adverse effects on the European economy. Such a development is estimated to mobilize the ECB towards a new interest rate reduction in order to boost the eurozone.
On the inflation front, the latest Eurostat figures confirmed its downward trend in May to 1.9% from 2.2% in April, which gives the ECB the opportunity to stop interest rates for the time being, as the target had been reached. Estimates show that inflation will follow a downward trend in the coming months.
Another crucial factor in shaping the ECB’s monetary policy is developments in the global bond market. They are mainly powered by the shift of large investment funds from US bonds to other placements and to European markets. They are stemming from the concern in US markets on the US fiscal situation.
The budget deficit in the US is at a particularly high level (6.5% of GDP), with debt growing rapidly. These data raise concern for investors in the US bond market. The turn of developments in those coming months and their impact on the European bond market will still be a critical factor that will be taken into account by the ECB on autumn decisions.