Deutsche Bank: Due to increased economic downturn risks, the European Central Bank will cut interest rates

ChainCatcher news, Deutsche Bank expects the European Central Bank to cut interest rates by 25 basis points to 2.25% at the April meeting. Although the ECB left the option open to continue cutting rates or pause in March, since then, the risk balance has decisively shifted towards an accommodative policy. The impact of reciprocal tariffs, rising uncertainty, and tightening financial conditions on the economy appears to be more severe than the ECB had anticipated.

Moreover, as anti-inflation forces increasingly dominate, the assumption that tariffs will push up inflation is now being challenged. Major (inflation) downside risks include the rapid appreciation of the euro, falling oil prices, and an increased likelihood of trade diversion, all of which put pressure on the inflation outlook. Deutsche Bank notes that inflation risks are currently clearly skewed to the downside. While guidance after the tariff pause may be only mildly dovish, the ECB must remain flexible in the face of complex and evolving shocks. Deutsche Bank maintains the view that the terminal rate will be set at 1.5% and warns that the market may still be underestimating the risk of deflation.