📝 Expect A Moderately Dovish ECB: ING

An ECB deposit facility rate cut by 25bp this week is fully priced in, but the outlook for next month is already becoming a lot less certain: a cut in April is seen with only a 60% probability. The market is homing in on a quarterly cutting schedule after this week. It is also still eyeing the possibility of the ECB cutting rates below 2% eventually, with the forward OIS for the year end below 1.9%. US tariffs could yet become more concrete and weigh on the macro outlook. But the perceived chances of the ECB cutting faster and further have slimmed noticeably again after the latest flash inflation readings declined less than markets had hoped.

Given the ECB’s recent tendency to give little away in terms of forward guidance, we think the determinant for market reaction will be whether President Lagarde continues to characterise monetary policy as “restrictive”. This is particularly relevant as a 25bp cut would take the deposit rate to 2.5%, which is the upper-bound of the neutral rate range.- ING