ECB Interest Rate Prep

On Thursday the 6th of March at 08:15 ET, the ECB is set to release the results of their latest monetary policy meeting.
Here are some views on what to expect.

Expectations

ECB Interest Rate
Forecast 2.65% | Range 2.65%/2.4%

ECB Deposit Rate
Forecast 2.5% | Range 2.5%/2.25%

February 25th:
[08:30 ET] The ECB is getting closer to leaving a restrictive policy stance

February 21st:
[03:17 ET]  Traders add to ECB rate bets, seeing 80bps more easing this year

February 19th:
[06:07 ET] ECB’s Schnabel: I would exclude a rate increase

Commentary
Deustche Bank
We expect the ECB to lower policy rates 25bp to 2.50% on 6 March, making it 150bp of cuts in total so far. The market will focus on: the updated staff macro projections and whether/to what extent the trade war and defence spending are captured, whether the Governing Council thinks monetary policy is still ‘restrictive’, and whether the door opens to a short pause in April. The staff growth projections are likely to be revised down. Recent data have been soft and we think the ECB can start to capture trade uncertainty in their baseline projections. Full incorporation of the trade war is unlikely, meaning further growth downgrades ahead. Higher gas prices during the survey window means HICP is likely to be revised up 0.1-0.2pp in 2025, but the ECB will likely look through this. In general, inflation remains on track to return to target in 2025. The balance of risks to growth will remain skewed to the downside, in our view. The Governing Council will continue to see upside and downside risks to inflation, with neither side dominating.
A rate cut in April remains our baseline. A ‘skip’ is a risk but needs a more benign US tariff announcement in early April. Watch how much emphasis President Lagarde puts on there being “no pre-determined path” for policy. Lagarde could say that pauses have never been ruled out, for example. That could be the compromise with the hawks for keeping ‘restrictive’. Our baseline has back-to-back quarter point cuts through H1 (2.00% policy rate by mid-year), and a slower pace of easing in H2 with quarter point cuts
in Sep and Dec (terminal rate 1.50% by year-end). The trade war is a key reason behind our sub-neutral call. Defence spending could lean against sub-neutral rates. Our assumption is the negatives of a trade war dominate the positives of defence spending in 2025.

Wells Fargo
The European Central Bank (ECB) announces its latest monetary policy decision next week at which we and consensus economists expect the central bank to lower its Deposit Rate by 25 bps to 2.50%. Underpinning the case for a rate cut at this meeting and beyond, in our view, is both the growth and inflation outlook for the Eurozone. The region’s economy barely grew in the fourth quarter of last year, while the two largest Eurozone economies—France and Germany—shrank. In addition, the manufacturing and services PMI surveys as of late have been consistent with an only mild pace of positive economic growth. As for inflation, while price pressures ticked up in January, there was a slight easing in core inflation, and the softer growth backdrop should be consistent with easing price pressures going forward, in our view. Meanwhile, both the ECB’s Wage Tracker and the Indicator of Negotiated Wages appear consistent with slower wage growth and ultimately softer underlying inflation pressures ahead. Given the relatively muted economic environment, we continue to expect European Central Bank rate cuts at the March, April, June and September meetings, which would see the ECB’s Deposit Rate reach a low 1.75% by late this year. Among the other elements of the announcement, we will be paying attention to whether the ECB continues to describe monetary policy as “restrictive,” while also watching for any changes in the ECB’s medium-term inflation forecasts.

Unicredit
Next Thursday, the ECB will almost certainly cut interest rates by a further 25bp, lowering the deposit rate from 2.75% to 2.50%. This would take the cumulative size of rate cuts for this cycle to 150bp. While the decision itself will probably be rather uncontroversial, the meeting promises to be interesting, and markets will focus squarely on any hints about the future trajectory of monetary policy. As interest rates are approaching a likely neutral area, the ECB will probably signal that further easing might be appropriate but will switch off the autopilot and leave all options open with respect to the timing of the next cut(s). In line with this expectation, we think the current reference to restrictive monetary policy will be tweaked.
Overall, we expect the discussion will heat up within the GC on what to do after next week’s cut as hawks start challenging the view that interest rates will have to continue to decline at a steady pace of 25bp per meeting. We think that the ECB will slow the pace of cuts to a quarterly frequency from 2Q25, but this is a close call, as the decisions of the GC will depend not only on the macro data but also on the geopolitical news, particularly any announcement with respect to tariffs. If trade tensions were to rise materially, the ECB would have to keep easing at a steady pace. We confirm our view that the deposit rate will decline to 1.75% by year-end as growth risks increasingly outweigh inflation risks.