ECB Interest Rate Prep

On Thursday the 17th 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.

Commentary
Deutsche Bank
We expect the ECB to cut policy rates a further 25bp on 17 April to 2.25%. At the March meeting, the Governing Council wanted to keep its options open for April: both a cut and a pause were on the table. Even with the US tariff pause, the arguments now clearly favour a cut. The hit to growth from reciprocal tariffs, uncertainty and financial conditions likely exceeds what the ECB was expecting. The ECB assumption that tariffs would boost inflation has been challenged too. Higher FX, lower oil prices and greater risk of trade diversion are skewing the inflation risks to the downside. How the market interprets the ECB on 17 April will depend on the guidance.

The balance of risks to inflation. Within two-sided risks, we expect the doves to be able to put more emphasis on the downside risks. To balance this, we expect the hawks to differentiate between near-term and medium- term risks. Uncertainty is high. The ECB needs to believe the emerging downside risks to inflation will persist if they are to have a significant impact on the path of policy. The staff forecasts in June will be important.

The “meaningfully less restrictive” stance. In March, the description of the policy stance changed from “restrictive” to “meaningfully less restrictive”. After 150bp of cuts, policy rates are closer to neutral. We expect the “meaningfully less restrictive” language to remain in April despite  another rate cut. In combination with the view that inflation is returning to target, this has an implicit dovish leaning.

The open-ended policy path. We expect the wording of the policy statement to remain unchanged: there will be “no pre-commitment to a particular rate path” and the ECB will keep the data-dependent, meeting- by-meeting approach to determining the “appropriate stance”. This open- ending wording allows the policy stance to remain restrictive, move to neutral or turn stimulative depending on the data. The US tariffs pause
means the doves have less basis to add conditional dovish language. Technically the open-ended language implies a pause in June is possible. We think Lagarde will try to avoid the pause word in the Q&A. We expect Lagarde to emphasize uncertainty and data dependence.

Wells Fargo
The European Central Bank (ECB) announces its latest monetary policy decision next week, with both ourselves and the consensus expecting another 25 bps cut in the Deposit Rate to 2.25%. For a time, the ECB’s monetary policy outlook had started to lean in a less-dovish direction. The central bank described its monetary policy stance as “meaningfully less restrictive” at its March announcement, while plans for German fiscal stimulus improved the medium-term outlook for both Germany and the Eurozone. However, more recent developments suggest that although the ECB is getting closer to the end of its easing cycle, it will probably continue with rate cuts for the time being. The United States announced aluminum and steel tariffs, which affect the European Union, while also imposing a broader 10% tariff on other imports from the EU. These factors add uncertainty and weigh on the outlook for activity, especially for 2025. Meanwhile, the latest CPI report for March was encouraging, with core inflation and services inflation slowing perceptibly. Against this backdrop, and to protect against downside economic risks, we expect European Central Bank to lower its policy rate 25 bps next week. We also forecast 25 bps of policy rate cuts in June andSeptember, for a year-end low of 1.75%.

Previous Release
On March 6th at 08:15 AM ET, the ECB cut the interest rate by 25 bps from 2.9% to 2.65%, and cut the deposit rate 25 bps from 2.75% to 2.5%.