Exclusive: ECB’s Šimkus: 25BP Rate Cut Needed in April

8 April 2025

By David Barwick – VILNIUS (Econostream) – The European Central Bank should cut interest rates again by 25bp in April, given the mounting downside risks associated with new US tariffs, in the view of ECB Governing Council member Gediminas Šimkus.

In an interview with Econostream (transcript here) on Monday, Šimkus, who heads the Bank of Lithuania, said that the potential need for a further cut in June had to be evaluated come June, but that overall, a less restrictive stance was called for and an April cut would still leave monetary policy at the upper bound of the neutral interval.

‘[W]e are very agile, and like my colleague [Banca d’Italia Governor] Fabio Panetta once said, we can take small steps in a dark room’, he said. ‘So, I think 25bp is needed in April, and as June is considered June, let’s see what has changed from April to June, and then make a decision.’

Although the ‘much more disappointing than anticipated’ tariff decision by the US could entail short-term inflation pressures, the ECB’s focus had to be on more lasting effects of the April 2 announcement, he said.

‘And the longer-term effects of the tariffs are weaker demand, lower growth, reduced business confidence, reduced capital spending, weaker consumer confidence - all disinflationary’, he said. ‘This warrants a more accommodative policy stance to ensure that inflation converges to our medium-term target.’

ECB policy was ‘currently still restrictive rather than neutral’, and one additional rate step would still leave it only at the bottom of the upper bound of the interval often thought to encompass neutrality, he said.

Euro area economic growth having previously been ‘sluggish’ and with the region already en route to the ECB’s price stability target, the latest trade developments posed a significant downside risk, Šimkus made yet clearer.

‘We have a worsening of the trade tensions that can be deflationary in the medium term’, he said. ‘So, my view is that we should proceed with cuts at the next opportunity. A risk management approach requires that we get to a less restrictive stance.’

Authorities had to ‘carefully monitor’ the risk that the ECB would undershoot its 2% target, a danger that had increased even before April 2, he said.

The ECB was however not behind the curve, Šimkus maintained, for which reason there was ‘no need to talk about 50bp’, which ‘would be too much’.

Still, he pushed back vigorously against calls for the ECB to pause its easing this month just because of the high uncertainty, observing that the downward trend of headline, core and services inflation as well as of wage growth all argued against hesitancy.

‘The underlying forces still make me think that in the medium term, undershooting or being at target is more probable than overshooting', he said. ‘To summarise, I still think that we need to cut rates in April, and then, with a lot more information in June - hopefully including more clarity on tariffs and other things - we can think about whether we should wait and see or cut again.’