ECB Interest Rate Prep

On Thursday the 5th of June 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.

Investment Bank Commentary
ANZ
Euro area (EA) inflation has improved sustainably and is set to undershoot the European Central Bank’s (ECB) target of 2.0% in the second half of this year. Inflation in Germany, France and Italy, the EA’s “price setters”, has fallen to or below target. Service price inflation is normalising. Slow growth and elevated uncertainty owing to US tariff policy has raised exogenous downside growth risks, at least in the short run. Cost push inflation pressures have diminished, as pandemic and Ukraine-war related supply-chain disruptions have resolved, wage pressures have subsided and energy prices have fallen. The ECB currently projects the Harmonised Index of Consumer Prices will end-2025 at 2.3% y/y, which we think looks too high based on current momentum. Brent oil prices are currently 15% below the ECB’s average 2025 projection (USD74/bbl), gas prices (EUR35.0/MWh) are below the assumed average (EUR50.2), and the EUR/USD exchange rate is stronger (assumed average 1.08). Wage pressures have moderated and are expected to continue easing. The ECB forecasts wage growth of 2.8% y/y in Q4, consistent with a return to target inflation, assuming longer run trend productivity growth of 1.0%. Encouragingly, service price inflation is moderating having been sticky at 4.0% throughout 2024. Supercore inflation – the price of goods ex-food and energy which are sensitive to the output gap – averaged 2.7% in the first four months of this year, down from 3.2% in the same period last year. Longer run surveys of inflation expectations are well-anchored around 2.0%, and the pandemic monetary overhang has unwound. Driven by developments in key inputs, the inflation path is signalling a moderation in price growth. We expect the ECB will cut its inflation forecasts when it publishes its updated macroeconomic projections this week and to also cut the policy rate 25bp to 2.0%. We see another 25bp rate cut in Q3, taking the ECB’s cumulative easing to 225bp this cycle.

Goldman Sachs
The Governing Council is widely expected to deliver another 25bp rate cut on June 5th, with investors focused on the ECB’s updated assessment of the economic outlook. We expect an unchanged staff projection for 0.9% growth in 2025 (with the strong Q1 print offsetting a downgrade for the rest of the year), a decline from 1.2% to 0.9% for 2026 and a 0.1pp increase for 2027 (due to more expansionary German fiscal policy). While core inflation has recently run above the staff’s March projections, the slowdown in wage growth, stronger Euro and sharply lower energy prices point to a notable downgrade of the inflation projections. We therefore look for the headline and core inflation projections to fall by 0.2pp each in 2026 to 1.7% and 1.8%, respectively. We expect very little policy guidance with the written language likely unchanged, pledging to set the “appropriate” policy with a “data-dependent” and “meeting-by-meeting approach.” The revisions to the staff projections will therefore likely be the most important signal for the path ahead. In the press conference, expect President Lagarde to emphasise the downgraded projections but also underscore the heightened uncertainty using new staff trade scenarios. We maintain our forecast for one more 25bp cut to a terminal rate of 1.75% in July. While a pause in July is possible with encouraging trade news, we believe that it is more natural to follow a sizeable forecast downgrade next week with another sequential cut in July rather than wait until September. Risks around our baseline rate path remain skewed towards further cuts given the trade tensions, with our probability-weighted forecast path below market pricing.

Wells Fargo
Our view, as well as the consensus view, is for the ECB to deliver a 25 bps rate cut, which would see the Deposit Rate reach 2.00%. If realized, this would mark 200 bps of cumulative easing since the central bank began rate cuts in June 2024. Recent Eurozone data have been somewhat mixed, but overall we believe that with some signs of ebbing inflation pressures, and with global uncertainty weighing on sentiment and potentially dragging on the region’s growth as well, the ECB is not yet done cutting lowering interest rates. However, given that there have been some minor bumps in the road in regard to inflation returning to the 2% target on a sustainable basis, our base case for a slowdown rather that a significant economic contraction, and with ECB policy rates now close to neutral, we do believe that this rate cutting cycle can come to an end in the third quarter. We look for the ECB to cut rates by 25 bps at each of its June and September meetings, which would see the Deposit Rate reach a low of 1.75%.