According to ChainCatcher, Deutsche Bank expects the European Central Bank to cut interest rates by 25 basis points to 2.25% at its April meeting. Although the ECB left room for further rate cuts or a pause in March, the risk balance has since decisively shifted towards an easing policy. The impact of tariffs, rising uncertainty, and tightening financial conditions on the economy seem more severe than the ECB initially anticipated.
Moreover, as anti-inflationary forces become increasingly dominant, the assumption that tariffs will drive up inflation is now being challenged. The main downward risks to inflation include a rapid appreciation of the euro, falling oil prices, and an increased likelihood of trade diversion, all of which put pressure on the inflation outlook. Deutsche Bank noted that inflation risks are currently clearly skewed to the downside. While guidance after the tariff pause may be only mildly dovish, the ECB must remain flexible in the face of complex and evolving shocks. Deutsche Bank maintains its view that the terminal rate will be 1.5% and warns that the market may still be underestimating the risk of deflation.
