Brokerages Morgan Stanley and Deutsche Bank expect the European Central Bank to reduce borrowing costs by 75 basis points (bps) this year, on uncertainty over the U.S. Federal Reserve rate cut outlook and sticky domestic inflation.
Last week, the ECB held interest rates at a record high on Thursday but signaled it could start cutting as soon as June.
However, hotter-than-expected U.S. inflation data spooked global markets and raised worries the Fed’s rate cuts might be delayed further.
“Over the last few months we have had to gradually back out of a more aggressively dovish call on the ECB. The economy has been a bit more robust and inflation a bit stickier than we were expecting,” Deutsche Bank analysts wrote in a note on April 15.
Deutsche Bank had previously estimated rate cuts of 125 bps by the ECB. It has, however, reiterated the central bank’s first rate cut will likely come in June.
Morgan Stanley economists, who had previously projected a total of 100 bps cuts this year, have revised their view for the December cut to 25 bps compared with 50 bps earlier.
“While a certain level of decoupling between the Fed and ECB can occur, we think that it will be limited,” Morgan Stanley analysts wrote in a note dated Monday.
Morgan Stanley’s rate cut outlook for the ECB is also in-line with its forecasts for the Fed’s policy easing.
