A group of policymakers is advocating for a pause in monetary policy changes, but this is not expected to influence the upcoming ECB meeting. The ECB is anticipated to reduce the deposit rate by 25 basis points during this session.
Predictions suggest that inflation projections for 2025 may be adjusted upwards, influenced by potential US tariffs. It is estimated that inflation may take longer than previously thought to meet targets, accounting for the possibility of tariffs.
The expectation is for one more rate cut in April, though risks are increasing that this may shift to June.
There is a growing argument among policymakers for a slowdown in policy adjustments, yet this is unlikely to alter what is coming at the next European Central Bank gathering. As of now, expectations remain firm that interest rates on deposits will be cut by a quarter of a percentage point.
Looking ahead, inflation estimates for 2025 might be revised higher. Part of this reflects concerns around possible new tariffs from the United States, which could affect trade costs and consumer prices in Europe. If those trade restrictions materialise, achieving the central bank’s inflation target may take longer than currently forecast.
At present, there is an assumption that another lowering of interest rates will happen in April. However, the possibility of a delay until June has been growing. If the economic outlook shifts in the next few months, or if inflation remains stubbornly high, then policymakers may opt to take more time before adjusting rates again.
For those in derivative markets, these potential shifts in monetary policy could require adjustments to existing strategies. If rate cuts arrive more slowly than expected, yield curves may steepen unexpectedly, requiring a rethink in positioning. If inflation expectations edge up, that could influence pricing for longer-term contracts.
We will need to watch how expectations evolve around inflation and trade policies. Any fresh developments on tariffs could force a reassessment, not just for inflation projections but also for how aggressively central banks adjust monetary policy. If delays in rate cuts become more likely, both short-term and longer-term market pricing will need to reflect that change. Keeping a close eye on forward guidance from monetary authorities becomes increasingly important.
