07:36 AM EST, 11/07/2024 (MT Newswires) -- Deutsche Bank said it lowered its central-case terminal rate forecast for the European Central Bank to 1.50% from 2.25%.
Rather than the ECB policy rate returning to neutral in mid-2025, the bank now sees the rate falling moderately below neutral by end-2025.
The rationale in part relates to the prospect of United States tariffs under a new Donald Trump Administration and in part a weaker underlying macro performance and the emerging threat of below-target inflation, stated Deutsche Bank.
Uncertainty is high on many levels, from the exact impact of US tariffs to the timing of their implementation to how and when the European Union responds. As such, the bank emphasizes wide confidence bands around the outlook for EU growth, inflation and monetary policy.
Capturing this uncertainty, Deutsche Bank considers 1.00%-1.75% to be the main landing zone for the ECB terminal rate.
According to the bank, the factors that will determine the path to and the level of the terminal rate will include (1) fiscal policy, (2) Germany, (3) China, and (4) oil prices. In aggregate, the global economy may now be in a different regime and the EU could be heading for more divergent macro conditions relative to the US.