MNI ECB Preview: The Last Consecutive Cut?

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Executive Summary

• The ECB is fully expected to cut its three key rates by 25bp this week, taking its deposit rate to 2.00%.
• That would be the mid-point of the neutral estimated range of 1.75-2.25% according to ECB staff, although senior ECB leadership including Lagarde last meeting have been keen to downplay neutral discussions when faced with significant shocks. 
• Nearing the perceived end of the easing cycle, focus will be on any clues around the willingness or lack thereof to highlight a potential pause in July. A July cut is only about 25% priced, perhaps vulnerable to dovish surprises.
• Lagarde is likely to stress ongoing large uncertainty whilst trying to maintain full optionality by reiterating a data-dependent and meeting-by-meeting approach.
• That could see market reaction having to run off the balance of risks and updated economic forecasts, which are likely to be downgraded for both HICP inflation and GDP growth. Analysts see core inflation with only a modest markdown in 2026 however, by -0.1pp after +0.1pp in 2025, so any surprises could be notable. Introduction of alternative scenario analysis adds some additional uncertainty.
• We also watch discussions on the euro’s global role and Lagarde’s reported job hunt with the WEF. 
• ECB-dated OIS prices a terminal deposit rate of circa 1.65% vs the median analyst view of 1.75%.
• Whilst the July meeting will have theoretically seen the conclusion of a 90-day pause in US tariffs, September could be perceived as a better time to cut again with fresh economic forecasts plus potentially more clarity on US tariff-focused court cases and German fiscal policy.