According to the Zhitong Finance APP, in the face of weak growth and inflation, the European Central Bank is considering accelerating the pace of interest rate cuts. A survey shows that analysts expect the European Central Bank to lower the deposit rate by 25 basis points to 2% at each of its policy meetings next week and in June, previously anticipated to reach this level a year later. This adjustment in expectations reveals deep-seated issues in the Eurozone economy, with both the service and manufacturing sectors in contraction, and businesses and consumers facing uncertainty.
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Figure 1
Risks are rising, with political turmoil leading to instability in the German and French governments, conflicts in Ukraine and the Middle East, and threats from Trump regarding trade tariffs, all causing unease among investors. David Powell, a senior economist in the Eurozone, believes that the European Central Bank is very likely to cut rates by 25 basis points on December 12, and that policy-making in 2025 will take on a dovish tone, as both inflation and GDP growth prospects have dimmed.
Widespread pessimism has sparked market speculation about whether the European Central Bank will take more significant rate-cutting measures. However, despite a few officials being open to this, most officials, including some senior doves, still support a gradual approach to rate cuts. Economists agree with this, but only JP Morgan predicts a 50 basis point cut in December.
Bill Diviney from the Dutch Bank points out, &#34;There are very good reasons for policy easing, but the urgency for a 50 basis point cut is not obvious at this moment.&#34; A more likely scenario is that the European Central Bank will adjust its official policy statement, with the current commitment being to &#34;maintain sufficiently restrictive rates when necessary.&#34;
About 53% of respondents expect policymakers to adjust the policy wording, but only one-third of respondents expect clearer guidance on the direction of interest rates. AFS Group analyst Arne Petimezas anticipates that the new policy wording will gradually trend towards neutrality. This requires officials to reach a broad consensus on how much rates can be lowered to shift the policy stance from tightening to easing. Despite differing opinions within the governing council, Chief Economist Philip Lane believes that the interest rate level should be around 1.5% to 2.5%.
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Figure 2
Respondents provided a narrow range for interest rates, with 90% setting the so-called neutral rate between 2% and 2.5%, and nearly two-thirds predicting that rates will have a stimulating effect by the end of next year. Only 11% of respondents expect the policy to remain tight.
Carsten Brzeski from the Dutch Bank stated that the European Central Bank's &#34;still strict monetary policy stance has become a risk factor,&#34; emphasizing structural issues, risks from the US-led trade war, and political conflicts in France. The latter has pushed up bond yields in the Eurozone's second-largest economy, with the yield spread between its ten-year government bonds and similar German bonds nearing levels seen during the 2012 European debt crisis
Even so, only 8% of respondents expect the European Central Bank to launch a plan aimed at addressing excessive market volatility, known as the &#34;Transmission Protection Instrument,&#34; within the next 12 months. One of Lagarde's biggest challenges next week is to &#34;clearly state that TPI intervention measures will not be taken—while not alarming the market.&#34;
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Figure 3
Most respondents expect the European Central Bank to lower its economic growth forecast for 2025 and to reduce inflation expectations for this year and next. Nearly two-thirds believe that the risk of prices being below the 2% target in the medium term is greater than the risk of being above that target.
Two months ago, this proportion was 55%. U.S. policy and geopolitical tensions are seen as the biggest economic threats. Marco Wagner from Commerzbank stated that the biggest challenge facing the European Central Bank is to grasp the short-term, medium-term, and long-term impacts of Trump's economic policies. Since the upcoming U.S. policies are still far from being specific, such analyses can only be conducted under conditions of significant uncertainty.
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Figure 4
However, there seems to be a consensus that Trump's tariffs will suppress economic growth but will not have a significant impact on inflation—putting the European Central Bank in a difficult position.
Dennis Shen from Scope Ratings stated that policymakers need to ensure sufficient monetary support for the Eurozone economy to address recession risks and mitigate the risk of long-term inflation falling below expectations again. However, the European Central Bank also needs to maintain sufficiently tight policies in the short term to address any new inflation arising from anti-tariff measures

The European Central Bank is considering accelerating interest rate cuts in response to economic weakness, with expectations that the deposit rate will be lowered to 2%. Analysts predict that interest rates will be cut by 25 basis points at both next week's and June's policy meetings. The Eurozone economy is facing weak growth and inflation, with contractions in the services and manufacturing sectors, and political turmoil increasing uncertainty. Although some officials support larger rate cuts, most still prefer a gradual approach. The market generally expects adjustments to the policy wording, and a broad consensus is still needed on the future direction of interest rates

- The European Central Bank (ECB) is considering accelerating interest rate cuts due to weak growth and inflation, with analysts predicting a 25 basis point reduction to 2% in upcoming meetings.  
- Economic challenges in the Eurozone, including shrinking service and manufacturing sectors, political instability, and geopolitical tensions, have led to widespread pessimism among investors.  
- While some officials are open to larger cuts, most support a gradual approach, with a consensus emerging around a neutral policy stance and a potential adjustment of economic forecasts for 2025.

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The European Central Bank may accelerate interest rate cuts to address economic weakness, with market expectations for deposit rates to drop to 2%