📝See ECB Cutting Rates One More Time In 2H: MUFG

We can’t see any obvious reason to delay getting rates back to at least neutral (i.e. 2%) from here given the wide range of known disinflationary pressures now facing the euro area. Lagarde acknowledged the downside risks to inflation projections from weaker demand, lower energy prices and trade diversion. These factors are more clearly defined than risks around supply-chain disruption, while there is still plenty of uncertainty regarding both timing and scope around new fiscal measures in Europe. This points to a small dovish bias, over the short term at least. We expect another cut in June, which will likely be supported by lower official HICP projections.

We then see one more cut in H2, which would take the deposit rate to 1.75% (i.e. neutral or slightly accommodative territory). By year-end there will be more clarity around the profile for new German fiscal stimulus (and perhaps also increased European defence spending) which is likely to bolster the case for calling a halt to the easing cycle. - MUFG