(MENAFN) The European Central Bank (ECB) is poised to pause its rate-cutting cycle in July, with a higher probability of easing monetary policy again in either September or December. This cautious stance stems from ongoing uncertainties linked to US tariffs impacting the eurozone economy.

Peter Vanden Houte, chief economist at ING Group, told media that the ECB’s current monetary policy stance is “in a good place now” and no longer restrictive. However, he highlighted emerging deflationary pressures driven by the euro’s significant appreciation since the start of the year and the potential dampening effect of elevated US import tariffs on European goods, which could stall the fragile recovery in Europe’s manufacturing sector.

Houte further explained that the ECB has factored in medium-term inflation risks, noting that inflation in Germany could pick up next year due to expansive fiscal stimulus measures. He emphasized, “All things considered, a wait-and-see approach remains the most probable course of action for the ECB next week. With the next potential tariff escalation not expected until Aug. 1, there’s little reason for a preemptive rate cut now, at the same time, the strengthening of the euro since the last meeting has not been strong enough to justify a rate cut next week.”

Meanwhile, Hadrien Camatte, senior economist for France, Belgium, and the eurozone at Natixis, conveyed to media that the ECB is “well positioned” to evaluate the current economic environment and risks amid this uncertainty. “Given the upcoming data by September, we believe that the ECB will have enough information to proceed with a new and final rate cut in next September -- we attach a probability of 20% to the adverse scenario, paving the way to another 25bp (basis point) policy rate cut at the December meeting should the 30% US tariffs be applied, and the European retaliatory measures be not proportioned,” he noted.

The combination of tariff-induced risks and currency fluctuations is shaping the ECB’s cautious but data-driven approach, signaling that monetary easing may be on hold for the moment but still remains a key tool if economic conditions deteriorate.

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