ECB to cut rates by less as Europe ramps up spending: poll
After six reductions so far, back-to-back cuts are still likely in April and June, the monthly poll shows
[LONDON] The European Central Bank (ECB) will lower borrowing costs two more times, according to analysts surveyed by Bloomberg who no longer expect interest rates to go below 2 per cent.
After six reductions so far, back-to-back cuts are still likely in April and June, the monthly poll showed. But contrary to the previous round, respondents then see the deposit rate – currently at 2.5 per cent – staying at 2 per cent till the end of the survey period.
In mid-February, a slim majority had envisaged a final move, to 1.75 per cent, in March 2026.
The slight shift in views follows plans by European governments to significantly boost investments in defence – an endeavour that’s likely to perk up flagging economic growth and stoke inflation. On top of the military expenditure, Germany is looking to revamp its ageing infrastructure with hundreds of billions of euros more in outlays.
The spending “will increase inflationary pressure in late 2026”, said Marco Wagner, an economist at Commerzbank.
That’s an opinion shared by Austria’s Robert Holzmann, who warned in an interview published on Friday (Mar 14) that the ECB should hold fire at its next meeting, and may eventually be forced to start raising rates again. Finland’s Olli Rehn, however, said there will not “necessarily” be a need to slow easing.
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Markets are wavering. They have pared bets on monetary loosening this year and now see one or two cuts, including a possible pause in April.
Survey respondents still expect the euro-zone economy to gain momentum, predicting growth of 0.9 per cent, 1.2 per cent and 1.5 per cent in the next three years – broadly in line with the ECB’s own projections.
“On the upside, fiscal spending packages for Germany and the EU are currently in the approval process and would add to growth, if enacted,” economists at TD Securities said. “On the downside, the threat of tariffs is negatively weighing on the outlook.”
Inflation between 2025 and 2027 is seen at 2.2 per cent, 2 per cent and 2.1 per cent – slightly faster than in the previous round for each. BLOOMBERG
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