ECB Prepares Shock Rate Cut—Dropping Below 2% This Month

Frankfurt’s money printers are at it again—Europe’s central bank slashes rates to sub-2% territory in desperate bid to juice stagnant economies. Because nothing says ’healthy recovery’ like negative real yields.

Analysts brace for crypto markets to front-run the liquidity tsunami as EUR-denominated assets get the monetary hose treatment. DeFi yields suddenly looking less ’risky’ by comparison.

Wunsch links rate cuts to Trump tariffs

Wunsch explained that his change in stance followed Trump’s announcement on April 2 of sweeping tariffs on nearly every major US trading partner.

The president slapped 20 percent levies on almost all exports from the EU, though that figure was cut to 10 percent on April 9 for a temporary 90-day negotiation period. Wunsch pointed out that the fallout from these tariffs adds “clear downside risks to inflation” and to growth prospects across the Euro area.

He also pointed out that the euro’s appreciation against the dollar—which came after what European officials are calling “liberation day”—has made imports cheaper. That, combined with falling energy prices and the expected arrival of cheaper Chinese goods, could reduce inflation even further.

In April, Eurozone inflation stood at 2.2 percent, just above the ECB’s target, but economists say the full impact of lower oil prices hasn’t yet shown up in consumer prices.

Wunsch dismissed the idea that Germany’s €1 trillion spending plan to rebuild its military and infrastructure could do anything to stop this short-term slide. 

“Fiscal policy takes time before it becomes supportive,” he said. He warned the region could be hit with a “negative [economic] shock in the short term” before seeing a “positive shock in 2026 and 2027.”

Kazaks sees few cuts left after June

Martins Kazaks, Latvia’s central bank governor and another ECB Council member, said Friday on CNBC that the ECB may be approaching the end of its rate-cutting cycle—if the inflation outlook stays stable. “We are relatively close to the terminal rate already,” Kazaks said. 

He still sees room for a “couple” more cuts this year but stressed that policymakers should not MOVE too fast given the ongoing uncertainty in the global trade environment.

Kazaks also said that he considers the market’s expectations “appropriate.” He reiterated that any future decision will depend entirely on incoming data. Investors have priced in another rate cut for June, and they’re betting on more by the end of the year. 

The primary driver behind those bets: weakening inflation trends and economic headwinds from Trump’s trade policies. New figures from Eurostat added to the urgency. The bloc’s economy only grew 0.3 percent in the first quarter—less than the previous estimate of 0.4 percent.

“The risk of a shallow, short recession is in my view still very significant,” Kazaks said. “Maybe not for the euro area as such but for specific countries by all means. So overall the lack of growth is the key story here.”

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