ECB Governing Council Member: US Tariffs Will Impact Eurozone Economy, Interest Rate Cut in June "Certain"

Gediminas Simkus, a member of the European Central Bank's (ECB) Governing Council and the Governor of the Bank of Lithuania, stated that as the full impact of the US tariff policy has yet to materialize and inflation is expected to continue to slow down, the ECB needs to further cut interest rates.

During an interview with the media on Friday (May 9) at the Reykjavik Economic Conference, Simkus said that although the eurozone economy performed moderately at the beginning of the year, recent geopolitical trends, including trade threats from US President Trump, have had an adverse impact.

At the same time, he believes that the significant downward trend in eurozone inflation has also become very clear. "For me, the interest rate decision in June is already quite clear – another interest rate cut is needed," he added, "and there may be further cuts after June," although the exact timing remains uncertain.

Since June last year, the ECB has cut interest rates seven times. With the potential drag on economic growth from US tariffs, ECB officials have indicated their readiness to take more action.

Despite the more cautious stance of other policymakers, investors currently expect two to three more interest rate cuts this year, and another cut in June is widely considered a high-probability event.

ECB deposit facility rate

On the same day, Olli Rehn, the Governor of the Bank of Finland, said at another conference in Helsinki that if the ECB's latest forecast confirms a slowdown in inflation and a weakening of growth momentum, he would also support further interest rate cuts.

Although data shows that the economy performed better than expected at the beginning of this year, this may be due to European companies taking preemptive actions to avoid US tariffs announced in early April. Therefore, economic performance may reverse in the coming months, especially if the EU fails to ease trade tensions with the US.

Simkus said that the eurozone's economic growth rate this year may even fall below the ECB's March forecast of 0.9%, with growth rates of 1.2% and 1.3% forecast for 2026 and 2027, respectively. However, he also said that the new forecast "may only be slightly worse."

Last month, ECB Chief Economist Philip Lane told the media that trade tensions have indeed darkened the economic outlook, but "the overall downward adjustment remains limited" as the economy continues to grow.

In terms of inflation, headline inflation remained at 2.2% in April, but core inflation rose more than expected. Due to the later Easter this year, the data may have been distorted. The slowdown in wage growth also supports the view that inflationary pressures are easing, and the decline in energy prices and the strengthening of the euro have reinforced expectations that inflation will pull back to the 2% target within the year.

Simkus cited factors such as the decline in oil and gas prices, the appreciation of the euro, and the potential "diversion" of cheap goods from the US to Europe, which could further suppress the growth rate of prices.

However, Simkus also showed a degree of caution. "We need to remain humble—there are still two years until 2026 and 2027, and anything can happen."