Published by Global Banking & Finance Review®
Posted on February 27, 2025
4 min readLast updated: January 25, 2026
Add as preferred source on GoogleThe ECB is expected to cut rates to 2.50% on March 6, focusing on growth despite trade war risks, as inflation nears the 2% target.
By Jonathan Cable
LONDON (Reuters) - The European Central Bank will trim its deposit rate again next week to 2.50%, according to all 82 economists polled by Reuters who expected two further cuts by the middle of this year.
Inflation was forecast to hover close to the central bank's 2% target, giving it scant reason to cut much further despite a sluggish economy and plenty of risks.
Nearly all respondents to an extra question in the poll said U.S. President Donald Trump's expanding trade war would be damaging to euro zone economic growth, potentially putting the ECB in something of a dilemma.
Trump floated a 25% "reciprocal" tariff on European cars and other goods on Wednesday.
Following the widely-expected March 6 reduction, the ECB will take another 50 basis points off the deposit rate next quarter and then hold steady through at least 2026, the February 19-27 poll showed.
The outlook beyond June was less clear, with 32 of 82 respondents seeing the rate below 2.00% at the end of this year. Markets have fully priced in an end-December rate of 2.00%.
"I think the discussion at the ECB could be very easy in the sense the decision now is obvious and the rest is preparation for what they have to discuss next time," said Holger Schmieding, chief economist at Berenberg, referring to the upcoming Governing Council decision.
But at subsequent meetings, he said, the decisions will be more up for debate despite fairly firm expectations for two more rate cuts.
"All options are open. Don't rule out a follow-up rate cut. Don't rule out if they're going up too," Schmieding said.
Policymakers last month made their fifth cut since June and guided for a further reduction in March as worries about tepid growth overtook concerns about persistent inflation.
Euro zone inflation rose to 2.5% in January from 2.4% in December, official data showed. A preliminary reading for February is due to be released on Monday while those for Germany and France, the bloc's two biggest economies, will be published on Friday.
Quarterly inflation forecasts for this year were revised up slightly from a January poll, but for 2025 it was seen averaging 2.1% before averaging at target in the following two years.
DEBATE OVER NEUTRAL
The neutral rate, which neither slows nor spurs growth, has climbed in the past two years and it's no longer clear the current rate is still holding back the economy, ECB board member Isabel Schnabel said on Tuesday.
ECB policymaker Pierre Wunsch said this week the bloc faces the risk of "sleepwalking" into excessive interest rate cuts.
But their fellow Governing Council member Fabio Panetta has argued that growth is weaker than feared and the consumer-led recovery is not materialising.
"By late summer ... discussions will become a bit more controversial. I think this is relatively clear," said Rainer Guntermann, a strategist at Commerzbank.
"It's about this neutral range ... I think the ECB has a sense it's at 2.5%, so the rate level is closer to a neutral range or is starting to get into the neutral range."
The economy will expand 0.9% this year and 1.2% next, poll medians predicted.
But the full extent of Trump's tariff plans is unknown, and 27 of 33 respondents to an extra question said the risk to their growth outlook was tilted to the downside.
In response to another question, 31 of them said they had factored into their forecasts that the expanding trade war was damaging - including one who said very damaging.
One said there would be no impact.
(Other stories from the Reuters global economic poll)
(Reporting by Jonathan Cable; Polling by Purujit Arun and Renusri K; Editing by Paul Simao)
The European Central Bank is expected to reduce its deposit rate to 2.50% on March 6, with further cuts anticipated in the following quarters.
Most economists polled believe that U.S. President Trump's expanding trade war will negatively affect euro zone economic growth, with many indicating a downside risk to their growth outlook.
Euro zone inflation is projected to hover around the ECB's target of 2%, with a slight increase to 2.5% in January, and forecasts for 2025 averaging 2.1%.
ECB officials suggest that the neutral rate, which neither slows nor spurs growth, is around 2.5%, indicating that the current rate may be close to this neutral range.
The economy is expected to expand by 0.9% this year and 1.2% next year, according to the median predictions from the economists surveyed.
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