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ECB: VIEW CHANGE: MS adds April cut but maintains 1.00% terminal rate

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  • Following a 25bp cut this week, Morgan Stanley no longer looks for a pause in April and instead looks for a 25bp cut. It then looks for a final sequential cut to 2.00% in June 2025. Thereafter it looks for a slower pace of cuts (at projection meetings only) to reach a terminal 1.00% rate in June 2026.
  • Previously MS had seen an April pause before sequential cuts through to the same 1.00% but reached in Q1-26.
  • MS notes that "The incoming data has been weaker than expected, both on the inflation and growth front... we revised last week our forecast for EA GDP growth... We expect the ECB to do the same and mark down its growth forecasts on Thursday as well. All these data are likely to support a view within the Council that rates can be brought fast to a level most Council members think is neutral. And we believe this level is 2.0%."
  • Thereafter expect the ECB to "only deliver rate cuts at projection meetings, reacting to subdued growth and weak inflation momentum. In our view, it will take the Council until the December meeting to cut rates with an explicit view that a move below neutral is warranted."
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  • Following a 25bp cut this week, Morgan Stanley no longer looks for a pause in April and instead looks for a 25bp cut. It then looks for a final sequential cut to 2.00% in June 2025. Thereafter it looks for a slower pace of cuts (at projection meetings only) to reach a terminal 1.00% rate in June 2026.
  • Previously MS had seen an April pause before sequential cuts through to the same 1.00% but reached in Q1-26.
  • MS notes that "The incoming data has been weaker than expected, both on the inflation and growth front... we revised last week our forecast for EA GDP growth... We expect the ECB to do the same and mark down its growth forecasts on Thursday as well. All these data are likely to support a view within the Council that rates can be brought fast to a level most Council members think is neutral. And we believe this level is 2.0%."
  • Thereafter expect the ECB to "only deliver rate cuts at projection meetings, reacting to subdued growth and weak inflation momentum. In our view, it will take the Council until the December meeting to cut rates with an explicit view that a move below neutral is warranted."