Deutsche Bank expects the European Central Bank to lower its key interest rate by 25 basis points to 2.00% at its June 5 meeting, marking a cumulative 200bp of cuts from the peak and bringing rates closer to a neutral stance. The bank anticipates the ECB will maintain its meeting-by-meeting, data-driven approach to policy decisions.
However, analysts at DB warn that convincing more hawkish Governing Council members to support the move may require signaling a degree of patience on further cuts. Deutsche is holding to its terminal rate forecast of 1.50% but acknowledges that growing macroeconomic resilience and a looming ramp-up in defence spending may limit the ECB’s scope to ease further.
The analysts say that if the trade war dampens growth in the second half and disinflation trends hold, a September cut to 1.75% would be justified. But whether the ECB will go as far as 1.50% before year-end is increasingly uncertain. Recent developments have raised the risk that the easing cycle could stop short of that level, with Deutsche concluding that the policy outlook remains highly fluid.
This article was written by Eamonn Sheridan at www.forexlive.com.
