Morgan Stanley, Deutsche Bank: ECB to make 75bps rate cut in ’24

Morgan Stanley and Deutsche Bank are expecting a 75 basis point (bps) reduction in borrowing costs by the European Central Bank (ECB) this year, Reuters reported on Tuesday.

They attributed their forecast to the uncertainty surrounding the US Federal Reserve’s rate-cut outlook and persistent domestic inflation.

Last week, the ECB maintained interest rates at an all-time high but hinted at potential cuts as early as June. However, the recent US inflation data, which exceeded expectations, has unsettled global markets and raised concerns about further delays in the Fed’s rate cuts.

Deutsche Bank analysts noted in an April 15 report, ‘Over the last few months, we have had to gradually back out of a more aggressively dovish call on the ECB.’”

The economy has been a bit more robust and inflation a bit stickier than we were expecting.” The bank had previously projected ECB rate cuts of 125 bps but now expects the first rate cut to occur in June.

Morgan Stanley economists have revised their forecast for the ECB’s December rate cut to 25 bps, down from an earlier prediction of 50 bps.

They believe that while some level of decoupling between the Fed and ECB can occur, it will likely be limited. This outlook aligns with their predictions for the Fed’s policy easing.