Investing.com – The European Central Bank 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 slashed 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 slapping sweeping new import tariffs on the Eurozone, with money markets now anticipating a total of four drawdowns in 2025. That would bring 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 bolstered forecasts for a reduction at the ECB’s January meeting. ECB President Christine Lagarde, along with a slate of other officials at the central bank, have supported bring down rates further.
Lagarde, in particular, told CNBC at the World Economic Forum in Davos, Switzerland this week that a “gradual move is certainly something that comes to mind at the moment”.
Writing in a note to clients on Thursday, the Deutsche Bank analysts led by Mark Wall said they see the ECB cutting by 25 basis points at each of its Governing Council’s four gatherings in the first half of 2025.
The analysts are then predicting the ECB will slow its cutting cycle in the second half, reducing rates by a quarter-point at both its September and December meetings.
“This view is predicated on the assumption of below-trend growth, moderately below target inflation and risks to inflation that are skewed to the downside,” the analysts said.
However, they flagged that there remains a risk that the ECB could opt to slow down cuts as soon as the second quarter.