European central banks have started to rethink their policies as Donald Trump prepares to take charge of the White House for a second time. With the incoming Trump administration, there is a fear of trade wars, volatile currencies, and other economic shifts. European policymakers are now taking the initiative to protect their economies by slashing interest rates while hinting at future cuts.

The Swiss National Bank (SNB) led the initiative, shocking the entire market with a half-point rate cut, bringing its rate to 0.5%. This is the first time since 2022, that Switzerland has experimented on negative rates for about eight years. Meanwhile, the European Central Bank (ECB) also affected its quarter rate point, dropping it to a rate last seen over a year ago. ECB president Christine Lagarde discussed the game plan. The cuts will continue next year, with sources with knowledge noting it may reach March.

Donald Trump’s policies forces central banks to take cover

The SNB is panicking, as the Swiss Franc, a safe haven in global crisis, is causing it anxiety. The SNB Vice president Antoine Martin, has highlighted the effects of external risk on the country’s economy. The SNB will do all it can to stabilize the currency, including sanctioning more rate cuts or bringing back negative cuts. Meanwhile, SNB president Martin Schlegel has warned traders about testing the central bank’s resolve.

The ECB, on its part, is staring at a weak economy and sluggish inflation. However, the bigger problem remains Trump’s trade policies. The bank already cut its deposit rates by 25%, bringing the points within 3%. The point cut signals the third consecutive, with it totaling 100 since June. Lagarde also said the bank is taking a step away from restrictive monetary policies, with its latest projection painting a bleak picture. Eurozone growth is projected at 1%, a drop from the earlier projected 1.3%.

Global economies want safety nets

Europe is not the only place where there is a panic to make the economy stronger against Donald Trump’s policies. The Canadian central bank cut its rates by 50 basis points, citing fears of higher tariffs from the United States. On its part, Brazil made a decision to raise its basis point by 100 points, a decision it took to steady its currency. The decision was taken after Trump promised a 100% tariff on members of the BRICS alliance if they try to move away from relying on the dollar.

However, the ECB has issues it needs to resolve. For instance, the Eurozone’s growth went up in the third quarter, with visible cracks appearing in several sectors. Its manufacturing sector has been weak for months and its services sector is following in the same path. Italy’s Fabio Panetta and France’s Francois Villeroy de Galhau have talked about using rate cuts to push growth while Germany’s Joachim Nagel has warned about overdoing it.

Investors and policymakers will be on their toes anticipating January 20, and the surprises the Trump administration will bring. Meanwhile, the Federal Reserve has decided to cut rates following the arrival of inflation data. Global central banks may follow suit, because of Trump’s policies.

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