ECB Call Update: Reducing Core Case Terminal Rate to 1.50% – Deutsche Bank

The forecast for the central terminal rate was reduced from 2.25% to 1.50%, says Deutsche Bank’s team of economists.

1.00-1.75% will be the main landing zone for the ECB

“Instead of the ECB’s policy rate returning to neutral by mid-2025, we now see the rate falling moderately below neutrality by the end of 2025. The rationale partly relates to the prospect of US tariffs under a new Trump Administration and in part with weaker underlying macroeconomic performance and the emerging threat of below-target inflation.”

“Uncertainty is high on many levels, from the exact impact of US tariffs to the timing of their implementation and how and when Europe responds. As such, we emphasize broad bands of confidence around the outlook for growth, inflation and monetary policy.” Capturing this uncertainty, we consider that 1.00-1.75% will be the main landing zone for the ECB’s terminal rate.”

“Factors that will determine the path to and level of the terminal rate will include (1) fiscal policy, (2) Germany, (3) China, and (4) oil prices. Taken together, the global economy may now be in a different regime and Europe could be heading towards more divergent macroeconomic conditions relative to the US.”