BUZZ-COMMENT-ECB hawk opens up pause debate but tariffs remain key

Feb 19 (Reuters) - Hawkish remarks have come from European Central Bank policymaker Isabel Schnabel, who stated that with rates moving away from being restrictive the bank needs to now debate when to pause or halt rate cuts.

Clearly Schnabel is flying the flag for the hawks on the Governing Council, and though this rhetoric suggests that the argument for moving rates notably below neutral has diminished, there are still risks to the euro area, namely U.S. tariffs.

In light of the tariff overhang, the path of least resistance continues to favour additional rate cuts, particularly with the fact that the ECB has room for another 50bps of cuts until the top of the estimated neutral rate range – 1.75-2.25% – is reached. At which point, the ECB may begin to look at slowing the pace of easing.

While a March cut looks to be a fait accompli given market pricing, there is a little more uncertainty over an April cut, currently priced at 53%. We have already seen ECB sources flag an April pause. However, with the potential for reciprocal tariffs to be imposed in April, debating a pause may be somewhat premature.

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