ECB Interest Rate Cuts

Investing.com – The European Central Bank (ECB) may begin to slow the pace of anticipated interest rate cuts this year in the third quarter, according to analysts at Deutsche Bank (ETR:DBKGn).

Economists widely expect the ECB to slash rates by a quarter of a percentage point at its upcoming policy meeting next week, after having cut borrowing costs four times to address weak growth and cooling inflation in the currency bloc.

Traders increased these bets this week after US President Donald Trump stopped short of formally imposing sweeping new import tariffs on the Eurozone, leading money markets to anticipate a total of four drawdowns in 2025, bringing the rate the ECB pays on deposits by Eurozone lenders to 2% by the end of the year.

Meanwhile, policymakers at the central bank have raised forecasts for a reduction at the ECB’s January meeting. ECB President Christine Lagarde, along with several other officials at the central bank, has supported lowering rates further.

Lagarde mentioned to CNBC at the World Economic Forum in Davos, Switzerland that a “gradual move is certainly something that comes to mind at the moment.”

Writing to clients on Thursday, Deutsche Bank analysts led by Mark Wall predicted the ECB would cut rates by 25 basis points at each of the Governing Council’s four gatherings in the first half of 2025. They expect the ECB to slow its cutting cycle in the second half, with rate reductions of a quarter-point at both the September and December meetings.

The analysts’ forecast is based on assumptions of below-trend growth, moderately below-target inflation, and downside risks to inflation. They also noted a risk that the ECB could choose to slow cuts as early as the second quarter.