ECB officials warn: The US-EU tariff deadlock may exacerbate deflationary pressures, with the possibility of the last rate cut in September

According to the Zhitong Finance APP, Gediminas Šimkus, a member of the European Central Bank's Governing Council and the Governor of the Bank of Lithuania, pointed out in an interview during the annual policy meeting in Sintra, Portugal, that the current inflation situation in the Eurozone still faces multiple downward pressures. He specifically warned that the recent rapid rise in the euro against the dollar and the fluctuations in the energy market caused by geopolitical conflicts in the Middle East could cause the inflation rate to deviate again from the control target of 2%. "From a risk balance perspective, the probability of inflation remaining below the target level has exceeded the upside risks," the central bank official admitted. Šimkus emphasized that although the latest forecasts indicate that the inflation rate will stabilize at 2% by 2027, the current price trends are still full of uncertainty. Geopolitical risks and the aggressive trade protectionist policies of the Trump administration in the United States pose major disruptive factors, particularly the passive appreciation of the euro triggered by the crisis of trust in dollar assets, which is creating a dual deflationary effect by lowering import costs and weakening export competitiveness. "We must closely monitor the rhythm of euro exchange rate fluctuations," he pointed out, "although the current exchange rate level has not yet broken through historical ranges, the issue of rapid unilateral appreciation cannot be ignored." Regarding the direction of monetary policy, Šimkus reiterated that maintaining interest rates unchanged at the July meeting is the most likely policy option. This statement aligns with mainstream market expectations, as the European Central Bank has consecutively lowered the benchmark interest rate eight times since the start of this round of easing in June 2024, with the market generally expecting the final rate cut to take place in September. The Governor of the Bank of Lithuania explained that the current interest rate level is close to the theoretical neutral range, neither stimulating excessive economic overheating nor constituting a drag on growth. When discussing transatlantic trade relations, Šimkus held a cautious attitude towards the prospects of negotiations between Europe and the United States. As the July 9 deadline for tariff exemptions approaches, substantial breakthroughs in negotiations have yet to be achieved. He reminded policymakers not to overlook the impact of existing trade barriers: "Currently, European goods exported to the U.S. face an average tariff rate of 10%, and the impact of such protectionist measures on the real economy has not yet fully manifested." In the context of fluctuating energy prices and escalating trade frictions, European Central Bank officials believe that maintaining price stability while ensuring economic growth is becoming increasingly complex