COMMENT-Door left ajar for ECB to deliver a larger cut

April 24 (Reuters) - The backdrop of trade tariffs weighing on the economic outlook has seen the European Central Bank shift towards a much more dovish stance.

This was highlighted at President Christine Lagarde’s post decision press conference and since echoed by several members on the governing council, which not only raises the likelihood that rates will move into accommodative territory but also the option for a larger rate cut has increased.

At the ECB press conference, Lagarde stated that assessing policy restrictiveness was meaningless, adding that the neutral rate works in a shock-free world. Currently, the deposit rate sits at 2.25%, thus at the top end of the estimated neutral rate range of 1.75-2.25%. Should ECB officials deem it appropriate to move to an accommodative stance, this effectively paves the way for 75 bps worth of easing, taking the deposit rate to 1.5%.

In getting to accommodative territory the door appears to be opening for a larger rate cut.

The dovish-leaning Olli Rehn noted that ECB should not rule out a larger cut, this sentiment was also shared by the ECB chief economist, Phillip Lane, which suggests that the bar to a 50 bp cut has been lowered.

Of course, this is conditional by the incoming data, but it is worth highlighting that the strength in the euro is also expected to be a drag on inflation. Therefore, the higher the euro does go from current levels, the more likely that the ECB could go ahead with a 50 bp cut.