Why are we expecting a rate cut from ECB?

Expectations of a rate cut from ECB in March meeting are widely spread in financial markets fuelled by a number of reasons.

The First is that inflation and core estimates are suggesting more stable prices in the coming month even after February releases surprized markets to the upside.

The Second is weak growth reflected in the standstill position taken by GDP recently, which could push the central bank to cut more to boost economic activity.

The third refers to stagflation risk which is a main source of concern in the light of high inflation, weak growth – 0.0% in Q4 2024 – as well as trade tensions. The whole blend of such factors tells us that it’s very difficult for economy in the Eurozone to get out of the current off-mode.

In spite of the reasons above, a number of ECB governing council members also see that it’s not appropriate to have more rate cuts in the near future. Isabel Schnabel?told the Financial Times?that the central bank “should now start to debate a pause or a halt to rate cuts.”

The European Central Bank has the flexibility to further reduce interest rates if inflation reaches its 2% target this year, as anticipated, ECB policymaker Joachim Nagel stated last Tuesday. He added that the outlook for prices is "encouraging."

Goldman Sachs expects rate cuts in April and June and even July meetings of ECB’s monetary policy committee based on its reading to growth, inflation, and current economic situation all around the world as a whole, especially developments of trade tensions. ??