(Reuters) – Nomura now expects the European Central Bank to lower rates only once this year, diverging from most brokerages that still see at least two reductions, after the central bank signalled the possibility of a pause at its latest meeting.
The ECB lowered the deposit rate to 2.5% on Thursday, its sixth cut since June, and said monetary policy was becoming less restrictive as inflation falls towards its 2% target.
While the wording could suggest further rate cuts, ECB President Christine Lagarde stopped short of reaffirming that rates were on a downward path and instead said that a reduction or a pause were both on the cards.
“The ECB delivered a neutral to marginally hawkish rate cut. We believe the change in wording on restrictiveness is at the margin more hawkish than we expected,” Nomura economists said in a note late on Tuesday.
Earlier this week, the brokerage had lowered its ECB rate cut outlook to two reductions from four in 2025, citing the impact of potential fiscal loosening in Germany.
Meanwhile, other global brokerages including Goldman Sachs, Morgan Stanley and Barclays maintained their forecasts of two rate cuts until the mid-year.
BofA Global Research sees four rate reductions – in April, June, July and September. It, however, added “We still think data will ultimately force the ECB to deliver depo cuts to 1.5%, but risks of a pause on the way have risen.”
On the other hand, Societe Generale expects a 25-basis point cut in April followed by a pause in June, while Daiwa Capital Markets expects a pause at the meeting next month.
(Reporting by Siddarth S in Bengaluru; Editing by Sonia Cheema)
