08:58 AM EDT, 07/29/2025 (MT Newswires) -- Deutsche Bank said it raised its European Central Bank terminal rate forecast to 2.00% from1.50% previously, as the trade deal with the United States is done, the economy is resilient, transmission is effective.

With the European Union and U.S. having reached a trade deal, there is less reason for the ECB to cut policy rates further, especially with the economy proving more resilient this year and monetary transmission working effectively, wrote the bank in a note to clients.

Deutsche Bank cannot rule out the possibility of further policy easing -- inflation is projected to undershoot the 2% target in 2026. However, further easing is now a risk scenario rather than baseline, and arguably a greater risk in December/Marche than in Septermber.

The bank's new baseline sees 2% as the terminal rate. In light of the significant fiscal easing, the next policy move will be a hike at the end of 2026.

There are some arguments that favor a "deepening" undershoot of the inflation target in 2026, in particular, foreign exchange, stated Deutsche Bank. This maintains the possibility of a risk-management rate cut.

However, the net impact of trade, fiscal and foreign exchange isn't consistent with a "lengthening" of the inflation undershoot. If anything, the risks are skewed towards a "shortening" of the undershoot.