07:01 AM EDT, 04/09/2025 (MT Newswires) -- Overall, at the next four meetings, ABN Amro said it expects 100bps of rate reductions, taking the European Central Bank's deposit rate to a low of 1.5%.

The risks to this view are skewed towards more rate cuts, wrote the bank in a note.

The next ECB policy meeting is scheduled for April 17.

Up until recently, the ECB has been agnostic on whether the tariff shock would be inflationary or disinflationary, saying that there are drivers in both directions. However, there seems to have been some shift in its thinking recently, with generally a more dovish tone and officials showing more concern about economic growth, stated ABN Amro.

This makes perfect sense as developments have been almost exclusively disinflationary, pointed out the bank. To start with economic growth, the outlook has deteriorated

sharply since the ECB published its March projections.

Second, the euro has strengthened "materially," and generally, financial conditions have tightened. Third, oil and commodity prices have fallen sharply. This reflects the deterioration in the global economic outlook generally and the fact that China -- a major source of demand for commodities -- is being hit with the highest United States tariffs.

Indeed, it is important to note that tariffs could make excess capacity in China's industrial sector worse, which would put downward pressure on global manufactured goods prices, added ABN Amro.

Finally, the European Union hasn't yet responded with retaliatory tariffs on U.S. imports, which could have been an upward pressure on inflation. However, ABN Amro calculates that even if it were to match U.S. tariffs, the direct upward impact on inflation would likely be "moderate."

Looking ahead, fiscal stimulus in the eurozone fuels the prospects of a growth recovery in 2026 and the years beyond, according to the bank. Given that fiscal policy will do a bit more of the heavy lifting than monetary policy, ABN Amro recently upgraded its views on the terminal rate to 1.5% compared with 1% before.

Overall, the bank maintains its long-running view that while tariffs will be inflationary for the U.S., they will be disinflationary for the eurozone. Indeed, ABN Amro thinks eurozone inflation will start to undershoot the ECB's goal from around the middle of this year.

Given the ECB's projections in March were already consistent with the deposit rate being reduced to around 2%, it makes sense, given the change in the outlook, to think that the eurozone is heading below that level, and quite possibly quite significantly below.