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The European Central Bank will lower interest rates twice more, according to a Bloomberg survey, but respondents warned it shouldn’t wait too long between those moves or investors will conclude that its easing campaign is already over.
Respondents predict quarter-point reductions on June 5 and at September’s meeting, when new quarterly forecasts should shed more light on the effects of US President Donald Trump’s reordering of global trade. That would bring the deposit rate to 1.75%, where the poll sees it settling through the end of 2026.
With inflation near 2%, Belgium’s Pierre Wunsch and Greece’s Yannis Stournaras — who hail from either end of the hawk-dove spectrum — have each discussed the merits of pausing soon. As well as buying time to digest the jolts from Trump’s tariffs, a timeout would signal ECB loosening is approaching an end, without formally committing.
“Further easing is still on the cards this year but most likely not before autumn,” said Nerijus Maciulis, chief economist at Swedbank. After June’s cut, “the Governing Council will have a full three months to assess the impact of changes in US trade policy.”
Sitting out one or more meetings before continuing to trim borrowing costs would risk communication challenges for President Christine Lagarde that grow with time, the poll showed. Almost 30% of analysts say the ECB can hold just once before markets conclude rates are at a floor. A quarter reckon it can afford a pause stretching for two meetings.
The ECB is wary of confusing investors. An account of its last policy meeting revealed that officials saw the need “to be a beacon of stability” and not cause “more surprises in an already volatile environment, which might amplify market turbulence.”
Asked at which point the ECB would acknowledge that it’s finished lowering rates, most survey respondents said it won’t.
“The ECB wants to keep all options open,” said Ulrike Kastens, a senior economist at DWS International. “Although the disinflationary trend is well on track in the short term, the ECB is likely to reiterate that the medium-term outlook for inflation is uncertain.”
A stronger euro, cheaper oil and softer economic growth — consequences of the trade uncertainty — suggest inflation will reach the ECB’s target sooner than previously thought. But risks including supply-chain disruptions and retaliatory tariffs by the European Union could revive price pressures down the line.
