ECB preview: A cut in March – less clear thereafter

We expect the ECB to cut its deposit rate by 25bp at next week’s meeting, a cut that is fully anticipated by the market. The key aspect to monitor is whether the ECB will keep or remove the reference to monetary policy restrictiveness in its March statement . Regardless of this, w e have little doubt that the Governing Council will maintain its data dependent approach. Is the direction of travel less clear after the March cut? Recent communication from ECB officials tend to indicate that the ECB is not done with rate cut s yet , but the hawkish part of the spectrum within the governing council seems to argue that the ECB is approaching a point where it may need to pause or halt its rate adjustments . We maintain our view of a terminal rate of 2% by June, as we continue to anticipate progress on the inflation front. The rationale for a 2% terminal rate is that it aligns closely with most estimates of the neutral rate in the euro area. Once this level is reached, we expect a prolonged period of "wait-and-see" to ensue. However, if core inflation proves to be stickier than anticipated, it could provide strong arguments for ECB hawks to consider a "pause" in April or later. Nevertheless, we believe this will not alter the trajectory toward a 2% terminal rate by summer—a season that , as it is well known, begins in June and concludes in September.