Morgan Stanley Predicts Back-to-Back ECB Rate Cuts—Starting This Week

​The European Central Bank (ECB) is set to cut interest rates this Thursday, and Morgan Stanley now expects another cut in April as well.

With inflation cooling and growth data weakening, the ECB appears ready to ease policy faster than expected. Markets have already priced in a 96% chance of a quarter-point rate cut, which would bring the deposit rate down to 2.5%—the lowest since February 2023.

Why Is the ECB Cutting Rates?
📉 Slowing Inflation – February’s core inflation data came in weaker than expected.
📉 Disappointing Growth – Key economic indicators, including purchasing managers' indexes (PMIs), missed forecasts.
📉 Market Expectations – Traders are betting that the ECB will bring rates down to 2% by mid-2025 and 1% by June 2026.

Morgan Stanley analysts say the ECB’s goal is to move rates to a “neutral level” as quickly as possible—and that could mean multiple cuts this year.

How Will This Impact Markets?
📊 The euro is up 1% this year, as traders weigh rate cuts in Europe vs. the U.S.
📊 European stocks have gained 10%, fueled by optimism over potential government spending and a possible Russia-Ukraine ceasefire.
📊 Bond markets are rallying, with investors positioning for lower yields as monetary policy shifts.

What’s Next?
💡 The April cut is still uncertain, depending on upcoming Q4 wage data, March PMIs, and inflation numbers.
💡 If inflation slows further, more cuts could follow in June and beyond.
💡 Investors are closely watching the ECB’s messaging this week—any surprises could shake markets.

For now, the ECB looks ready to ease aggressively, and Morgan Stanley believes this is just the beginning.






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