ECB Faces Complex Policy Decisions Amid Inflation Uncertainty

AMSTERDAM: The upcoming policy meeting of the European Central Bank (ECB) presents a challenge, as policymakers must carefully weigh the uncertain inflationary effects stemming from US tariffs, according to Klaas Knot, the Dutch central bank governor, in a recent interview with the Dutch financial publication FD.

Knot commented on the impact of tariffs imposed by US President Donald Trump, stating, “In the near future, the demand shock will clearly be the primary factor, leading to a reduction in inflation.”

He further added, “However, the ECB considers inflation risks over the medium to long term. Looking ahead, these risks are undoubtedly balanced. I anticipate that the June meeting will be particularly complex.”

Potential Rate Cuts and Economic Forecasts

ECB policymakers are increasingly optimistic about the possibility of lowering interest rates in June, given the continuing decline in inflation. However, sources indicated last week that there is limited support for a substantial adjustment.

Many governors now perceive an increased likelihood of an eighth reduction of a quarter-point at the June 4 meeting, during which the ECB will revise its economic projections.

Earlier this month, the ECB lowered its key interest rate to 2.25%.