The European Central Bank is expected to cut interest rates twice more this year, but the long intervals may lead the market to misjudge the end of the easing cycle

According to the Zhitong Finance APP, a recent survey shows that respondents expect the European Central Bank (ECB) to cut interest rates two more times. However, at the same time, respondents warn that if the interval between these two rate cuts is too long, investors may conclude that the ECB's easing cycle has ended.

It is reported that respondents expect the ECB to cut rates by 25 basis points at the policy meetings in June and September, at which time the new quarterly forecasts will help further reflect the impact of U.S. President Trump's influence on the global trade landscape. If the ECB cuts rates two more times as expected, the deposit facility rate will be lowered to 1.75%, a level that is expected to be maintained until the end of 2026.

As inflation approaches 2%, Pierre Wunsch, the Governor of the National Bank of Belgium and a member of the ECB, and Yannis Stournaras, the Governor of the Bank of Greece, have discussed the rationale for "quickly pausing rate cuts." This would not only buy time to digest the impact of Trump's tariffs but also signal to the market that the easing policy is nearing its end without the need for a formal announcement.

Nerijus Maciulis, Chief Economist at Swedbank, stated: "Further easing of policy by the ECB is still planned for this year, but it is unlikely to happen before autumn." "After the rate cut in June, the ECB's Governing Council will have a full three months to assess the impact of changes in U.S. trade policy."

The survey shows that nearly 30% of respondents believe the ECB can only pause once; otherwise, the market will think that interest rates have bottomed out. A quarter of respondents believe that a maximum of two pauses is possible. If the ECB skips one or more meetings before continuing to cut rates, it may pose communication challenges for ECB President Christine Lagarde. The ECB is cautiously avoiding causing market turmoil. The minutes from the last ECB policy meeting indicated that officials believe it is necessary to "be a stable beacon" and avoid bringing more surprises into an "already turbulent environment, thereby exacerbating market volatility."

When asked when the ECB would officially acknowledge that the rate-cutting cycle has ended, most respondents said they would not. Ulrike Kastens, Senior Economist at DWS International, stated: "The ECB wants to keep all options open." "Although the trend of falling inflation is evident in the short term, the ECB may continue to emphasize that the medium-term inflation outlook remains uncertain."

The strengthening euro, falling oil prices, and slowing economic growth—consequences brought about by trade uncertainties—mean that inflation in the eurozone may reach the ECB's target faster than previously expected. However, risks including supply chain disruptions and retaliatory tariffs from the EU could reignite price pressures. Consumers in the eurozone are showing signs of concern, with their inflation expectations for the next 12 months rising in both March and April Analysts expect that the European Central Bank's new forecasts next week will largely confirm the predictions made in March, indicating that inflation will weaken this year and growth will slow down by 2026. However, they also warn that these forecasts may not fully reflect the trade difficulties that the eurozone could face.

Carsten Brzeski, an economist at ING, stated: "The biggest challenge will be how to deal with ongoing tariff uncertainties. The European Central Bank will need to wait until the 90-day tariff suspension period ends before incorporating tariffs into its forecasts. This means that, for now, only the anti-inflation effects brought by a stronger euro and falling oil prices can determine the interest rate trend."

The European Central Bank will also release alternative scenarios alongside its baseline forecasts, which may help determine the best policy path. However, the mere return of these scenario forecasts—reintroduced for the first time since the pandemic and the outbreak of the Russia-Ukraine conflict—highlights the increasingly volatile situation policymakers are facing.

Fabio Balboni, a senior eurozone economist at HSBC, pointed out: "The European Central Bank's policy has been very predictable over the past few months, but it may face greater challenges this summer." "The divisions within the Governing Council of the European Central Bank regarding the next steps seem to be intensifying."

In addition to interest rate issues, some European Central Bank officials also wish to discuss the impact of quantitative tightening (QT), particularly the issue of rolling off maturing bonds from the European Central Bank's balance sheet. European Central Bank Executive Board member Piero Cipollone has stated that the easing of financing conditions brought about by interest rate cuts should be able to "compensate" for the tightening effects of QT. However, only about a quarter of respondents agreed with his concerns and believed that the European Central Bank should immediately stop QT or do so after the interest rate cut cycle ends.

Traders are betting that the European Central Bank will cut rates at least once more this year after June, fully expecting this to happen before October, with a 30% chance of further cuts in December. However, a quarter of economists believe that the June rate cut will be the last. Bas van Geffen, a senior macro strategist at Rabobank, stated: "The European Central Bank needs to convey a subtle signal, indicating that the baseline judgment is that the rate cut cycle is essentially over while retaining space for further action in the event of negative shocks." "This will be a tightrope balance, especially in the context of the market betting on further rate cuts and leaning towards seeking more easing possibilities."