The European Central Bank adopts a more dovish stance to ease monetary policy against recession, with interest rates possibly falling below 2% in September

According to the Zhitong Finance APP, economists surveyed indicated that the European Central Bank (ECB) is expected to lower borrowing costs to below 2% this year, as inflation is projected to fall below the ECB's target by early 2026, a greater reduction than previously anticipated.

The monthly survey shows that after the seven rate cuts of 25 basis points implemented so far, further cuts may occur in June and September. This would reduce the deposit rate from the current 2.25% to 1.75%. In the last survey, respondents believed that the deposit rate would remain at 2% throughout the survey period.

However, analysts predict that the ECB will raise rates again to 2% in the first quarter of 2027, keeping the forecast for the survey endpoint (the third quarter of 2027) unchanged.

Observers of the ECB expect two more rate cuts this year.

Analysts have lowered inflation expectations, now forecasting average price increases of 1.7% and 1.8% for the first two quarters of 2026, down from the previous survey's expectation of 1.9%.

Officials have recently made optimistic comments about inflation and are prepared to further lower borrowing costs, with the next action possibly in June. Due to the weak European economy, particularly affected by U.S. President Trump's trade tariffs, the market anticipates two to three more rate cuts this year.

Last Friday, Lithuania's central bank governor Gediminas Simkus stated that a further rate cut in June is "necessary" as the eurozone economy has not yet felt the full impact of U.S. tariffs, and "clear anti-inflationary forces" such as falling energy prices and a stronger euro are at play.

He added that "there may be another rate cut after June," but the timing is uncertain. He mentioned that this move could occur in July, September, or even December.

Finland's central bank governor Olli Rehn also stated last Friday that he would support a rate cut next month if the ECB's new forecasts confirm a slowdown in inflation and weakening growth momentum.

However, ECB Executive Board member Isabel Schnabel urged caution last Friday, suggesting that in an environment of rising uncertainty, a "robust" policy and keeping rates near current levels is most appropriate.

The ECB's June forecast will play a key role in these decisions. In March, the ECB projected economic growth of 0.9% this year, with growth rates of 1.2% and 1.3% in 2026 and 2027, respectively.

Chief Economist Philip Lane stated last month that trade tensions have darkened the outlook, but "it is important to say this is just a slight downgrade," as the economy is still growing. The eurozone's output even unexpectedly grew by 0.4% in the first quarter, double the growth rate of the previous period.

The inflation rate in the Eurozone is moving towards the European Central Bank's target of 2%.

In terms of inflation, the European Central Bank expects the inflation rate to slow from 2.3% this year to 1.9% and 2.0% in 2026 and 2027. Some policymakers have already hinted at the possibility of lowering expectations, intensifying discussions about inflation potentially falling below the European Central Bank's 2% target again.

However, the inflation rate unexpectedly stabilized at 2.2% in April, with a core indicator jumping to 2.7%, far exceeding analysts' predictions