ECB rate setter sees room for cuts despite US tariffs

The Euro sculpture stands in front of the former headquarters of the ECB in Frankfurt, Germany, Tuesday, May 23, 2023. (AP Photo/Michael Probst, File)

FRANKFURT, Germany — A European Central Bank interest rate setter said there is “still room” to further cut borrowing costs, and downplayed fears that US tariffs could dramatically stoke eurozone inflation.

The ECB reduced rates again earlier this month to support the sluggish eurozone but, facing uncertainty due to US levies and massive German spending plans, what happens at its next meeting in April is unclear.

However, Francois Villeroy de Galhau, a member of the ECB’s rate-setting governing council, said in an interview with German daily Frankfurter Allgemeine Zeitung published Tuesday that “there is still room for further easing”.

“Tariffs are not expected to have a significant inflationary impact in the euro area — and much less than in the United States,” added Villeroy de Galhau, who is also governor of the Bank of France.

READ: ECB lowers rates again but hints more cuts in doubt

US President Donald Trump’s tariffs on steel and aluminum have already prompted the EU to announce retaliatory measures, and he is also threatening to hit the bloc with more sweeping duties.

Inflation easing

Villeroy de Galhau noted, however, there was a “solid trend” of eurozone inflation easing.

Inflation has been slowly coming down since hitting record highs in late 2022, easing to 2.3 percent in February, close to the ECB’s two-percent target.

READ: Debate over rates pause mounts as ECB set to cut again

Villeroy de Galhau said that “the pace and extent of” rate cuts was not yet decided, and decisions would be made “based on data”.

He said, however, it was “possible” that the key deposit rate could drop to two percent at some point in the summer, meaning a reduction of half a percentage point from its current level of 2.5 percent.