The European Central Bank is almost certain to cut interest rates again this Thursday (March 6), which may be its last relaxed decision in a while. With the looming trade war and the advancement of Europe's rearmament plan, the European continent is facing the largest economic policy change in decades. This interest rate cut is not only a response to the current economic weakness, but also a prediction of the complex situation in the future. The decision signals of the European Central Bank and their guidance for future policies will become the focus of market attention.

1. Background and Expectations of Interest Rate Reduction

Due to falling inflation and sluggish economic growth, the European Central Bank has rapidly reduced borrowing costs over the past nine months. It is expected to cut interest rates by another 25 basis points this Thursday, lowering the deposit rate to 2.5%. However, this interest rate cut may be the end of this easing cycle, as interest rates are gradually approaching levels that are no longer restrictive on economic growth.

2. The impact of trade wars and military restructuring

The trade war between Europe and the United States is brewing, and companies are reducing investment due to concerns about damaged demand, which has hit economic growth. At the same time, Germany and the European Commission announced changes to fiscal rules to increase defense and infrastructure spending, partly to fill the gap left by reduced US support. This structural shift may have a long-term impact on European economic growth.

3. Differences and challenges within the European Central Bank

With the rapid changes in the economic outlook, European Central Bank decision-makers are increasingly divided on the necessity of support measures. Bank of America analysts pointed out that this is the last "easy" interest rate cut, and the differences among committee members will become more apparent in the future. The new economic forecast made by the European Central Bank based on data from a few weeks ago may show a trajectory of weak growth and slightly rising inflation, but policymakers will be more pragmatic and acknowledge the exceptional uncertainty currently faced.

4. Focus of this meeting

The key to Thursday's meeting is whether the European Central Bank will maintain its policy wording of "maintaining restrictions" or remove it to indicate that it is close to achieving its goals. Even if this wording is deleted, it does not mean a pause in interest rate cuts, but may instead indicate greater uncertainty and debate before future policy meetings.

Another observation focus is whether European Central Bank President Lagarde insists on a clear policy direction, with only the timing and magnitude of easing to be discussed.

The market expects two more interest rate cuts this year, but this expectation has been slightly adjusted due to the release of the German budget.

summarize

The European Central Bank's interest rate cut may be its last easy decision in the short term, and it will face multiple challenges in the future such as trade wars, military restructuring, and economic policy changes. Although interest rate cuts are still the main policy tool at present, as interest rates approach the edge of restrictive levels, the policy space of the European Central Bank is shrinking. In the future, how the European Central Bank balances inflation, growth, and fiscal policy in a complex economic environment will be the key to determining the direction of the European economy.

In the short term, the expectation of interest rate cuts and uncertainty may put pressure on the euro and exacerbate exchange rate fluctuations. In the medium to long term, trade war risks, fiscal policy adjustments, and economic growth prospects will be key factors affecting the euro. If fiscal expansion and economic growth improve, the euro may receive support; On the contrary, if the trade war escalates or the economy weakens, the euro may face further downward pressure.