Deutsche Bank has revised its forecast for the European Central Bank’s (ECB) terminal rate, lowering its central-case projection from 2.25% to 1.50%. The bank now anticipates the ECB’s policy rate will dip slightly below the neutral rate by the end of 2025, rather than returning to neutral by mid-year as previously expected.
This shift in outlook is driven by several factors, including the potential for new tariffs from a Trump administration, which would likely impact trade, along with weaker macroeconomic performance in Europe and the increasing risk of inflation falling below target.
According to Deutsche Bank, the uncertainty surrounding these dynamics is considerable, especially given the unclear timing and effects of U.S. tariffs and potential European responses. Reflecting this uncertainty, the bank has outlined a broad target range of 1.00% to 1.75% for the ECB’s terminal rate.
Deutsche Bank notes that the terminal rate’s trajectory and ultimate level will depend on key influences such as:
- European fiscal policy,
- the economic health of Germany,
- developments in China,
- and fluctuations in oil prices.
The bank further suggests that the global economy may be entering a new phase, with Europe potentially experiencing increasingly divergent economic conditions compared to the U.S.
This article was written by Eamonn Sheridan at www.forexlive.com. Source