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Morgan Stanley Now Expect 75BP of ECB Cuts This Year

ECB VIEW
  • Following their Fed expectation revisions, Morgan Stanley have adjusted their forecast for the ECB cutting cycle. They now expect 75bp worth of cuts in 2024, down from 100bp prior. In 2025, Morgan Stanley maintain their call for 100bp worth of cuts but distributed in 25bp increments across all four projection meetings.
  • For reference, US economists from Morgan Stanley now expect the first Fed cut to come only in July, forecast one less cut this year and see the Fed stopping cuts mid-2025 at 3.625%. While a certain level of decoupling between the Fed and ECB can occur, MS think that it will be limited.
  • While still expecting three ECB cuts this year at each projection meeting, MS change the call for the December cut to 25bp, down from 50bp. MS expect a more cautious approach will be warranted and forecast a relatively similar profile to the Fed.
  • In 2025, MS maintain their call for 100bp worth of cuts, in line with the Fed call too. However, they now expect a 25bp cut in March, down from 50bp and add a cut by 25bp in December 2025.
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