Three interest rate cuts in 24 hours: how is Europe reacting to Trump's duties?

Three European central banks - Switzerland, Sweden and Norway - have cut their key rates. Moreover, all of them allowed further cuts, while in the case of Switzerland the rate has already reached 0%. Such decisions contrast sharply with the policy of many other regulators, which so far prefer to take a more cautious stance amid uncertainty over Donald Trump's trade policy and the growing conflict between Iran and Israel.

Over the past 24 hours, three European central banks have cut key rates by 0.25 p.p., reports Bloomberg. This is how the monetary authorities are trying to cope with the consequences of Donald Trump's unpredictable trade policy, the agency explains.

The key rate of the Bank of Sweden (Riksbank) is now 2%, the Bank of Norway (Norges Bank) - 4.25%, and Switzerland (SNB) - 0%. Representatives of all three regulators said that they do not rule out further easing. Swiss Bank Governor Martin Schlegel clarified that he is considering this option even if it would bring the rate back into negative territory, while recognizing that this could create difficulties for many participants in the economy.

Although back in March the Swiss and Swedish regulators signaled the end of easing cycles, after the announcement of Trump's large-scale trade duties in April, expectations changed - most economists began to predict a reduction in rates. But the Norwegian central bank's decision came as a surprise: none of the economists surveyed by Bloomberg expected a cut. This is the first rate cut in this country since the pandemic.

The reasons for lowering rates in Sweden, Norway and Switzerland are similar - inflation, although its indicators differ, notes Bloomberg.

In Switzerland consumer prices fell 0.1% year-on-year in May, dipping below zero for the first time since early 2021. The SNB's new forecast suggests an average inflation rate of 0.2% for this year. Amid the duty suspension and high volatility in the U.S. stock market, the Swiss franc, traditionally considered a defensive asset, strengthened against the dollar to a decade high as investors sought new safe havens instead of the U.S. currency, noted the

After the announcement of the Swiss regulator's decision, the franc strengthened by 0.2% - some investors expected a larger rate cut, by 50 basis points at once, the agency said.

In Sweden, price pressures have eased after a temporary spike earlier this year, and glimmers of recovery in Scandinavia's largest economy have faded. That has given room for the regulator to stimulate, Riksbank Governor Erik Tedeen said Wednesday. The Swedish krona has led gains among G10 currencies, strengthening 15 percent against the dollar, reducing inflation risks from higher import costs.

In Norway, price growth has remained more resilient over the past year, partly due to the weakness of the krone. However, core inflation last month was at its lowest level this year at 2.8%. Norway's central bank forecast price growth of 2.2% next year, up from the 2.7% estimate it announced in March. Inflation is expected to be around 3% this year.

This week, at least 18 central banks, which manage more than 40% of the global economy, are making or have already made decisions on rates, emphasizes Bloomberg and notes that other regulators have taken a wait-and-see attitude. Thus, the U.S. Federal Reserve, the Bank of Japan and the Bank of England have kept rates unchanged - amid continued uncertainty over Trump's trade policy and the approaching deadline of July 9, when the U.S. moratorium on additional duties for most countries is due to expire. After that date, Trump could reintroduce higher duties on trading partners around the world. However, many analysts, such as Goldman Sachs chief economist Jan Hatzius, don't rule out that the deadline will be extended. However, combined with a potential U.S. strike on Iran, these are uncertainties and regulators prefer not to take active action for now, Bloomberg explains.

«Differences in the impact of rates and the state of labor markets help explain why the Bank of England and the Fed have been slower than others to cut rates. Now an additional factor has been the conflict in Iran. In the shale-oil-rich US, rising energy prices are stoking inflation without seriously damaging GDP, making it difficult for the Fed to ease policy. In Europe, dependent on oil imports, high inflation is accompanied by weak growth, and that makes the decision to cut rates more obvious,» said Bloomberg economist Jamie Rush.