Sources suggest ECB policymakers lean toward rate hold as tariff risks cloud outlook

Sources revealed that European Central Bank (ECB) policymakers expect to keep rates unchanged, unless they see a deterioration in growth and inflation resumes its downward path, as two sources told Reuters.

The ECB maintained unchanged rates, after easing policy eight times in a row. The ECB acknowledged that uncertainty about tariffs keeps policymakers on their toes, and sources mentioned that although a deal is reached, the ECB would not react immediately to the news.

Sources added that the ECB's Governing Council needs to see inflation and growth edging down to reduce interest rates.

"The sources said that policymakers mostly agreed on how the economy would behave in the ECB's baseline scenario, in which the U.S. administration imposes a 10% tariff rate on European Union imports."

Nevertheless, a discussion emerged on whether tariffs should be higher, with hawks favoring higher rates. At the same time, doves saw the risks of an economic slowdown increasing, which indicated that rates should be reduced.