The European Central Bank (ECB) is likely to start slowing down the pace of interest rate cuts expected this year by the third quarter, according to analysts at Deutsche Bank.
Economists expect the ECB to cut interest rates by a quarter of a percentage point at its policy meeting next week, after four cuts in borrowing costs to tackle weak growth and slowing inflation in the eurozone.
Traders increased their bets this week after US President Donald Trump stopped short of imposing sweeping new import tariffs on the eurozone. Money markets are now expecting a total of four rate cuts in 2025, which would bring the interest rate paid by the ECB on deposits by eurozone lenders to 2% by the end of the year.
Meanwhile, policymakers at the central bank have reinforced their forecast for a rate cut at the ECB’s January meeting. ECB President Christine Lagarde, along with several other central bank officials, have backed further rate cuts.
Lagarde, in particular, told the World Economic Forum in Davos, Switzerland this week that “gradual moves are definitely on the mind at the moment”.
In a note to clients on Thursday, Deutsche Bank analysts led by Mark Wall said they expect the ECB to cut rates by 25 basis points at each of its four Governing Council meetings in the first half of 2025.
The analysts then predicted that the ECB would slow down its rate-cutting cycle in the second half of the year, cutting rates by a quarter of a basis point at its September and December meetings.
“This view is based on the assumption of below-trend growth, modestly below-target inflation, and downside risks to inflation,” the analysts said.
However, they cautioned that there was still a risk that the ECB might choose to slow down rate cuts as early as the second quarter.
