(March 20): The European Central Bank (ECB) is unable to make firm commitments on interest rates due to elevated unpredictability over trade, according to President Christine Lagarde.

While the process of disinflation remains “well on track”, Lagarde told European lawmakers in Brussels that the eurozone is particularly exposed to shifts in tariffs, weakening confidence in the ECB’s projections.

“Especially in current conditions of rising uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary-policy stance,” Lagarde said Thursday. “We are not pre-committing to a particular rate path.”

Receding inflation has allowed the ECB to gradually lower borrowing costs, with the latest quarter-point reduction this month leaving the deposit rate at 2.5%. If and when additional cuts come is increasingly hard to gauge due to the US trade tensions, uncertainty over a peace deal in Ukraine and the upcoming jump in European defense spending.

That’s all left investors less sure that a seventh decrease in rates will arrive in April, though they still lean toward two more this year. Backing that view, Eurostat said Wednesday showed February inflation was slower than initially estimated, at 2.3%.

Key will be whether the fiscal largess can offset any damage from US tariffs to the eurozone’s fragile economy, and the eventual effect of the two factors on prices.

Lagarde cited an ECB analysis suggesting that a US tariff of 25% on European imports would lower the region’s economic growth by about 0.3 percentage point in the first year. European Union retaliatory measures would further increase this to about half a percentage point.

At the same time, the inflation outlook would become significantly more uncertain, Lagarde said. In the near term, European retaliation and a weaker euro exchange rate could lift price growth by about half a percentage point, she said.

Lagarde had warned earlier of two-sided risks to the inflation outlook. Caution is prevailing elsewhere, with the Federal Reserve leaving rates unchanged on Wednesday and the Bank of England expected to do so later Thursday.

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