Analyst: The European Central Bank may cut interest rates more than expected this year, with deposit rates falling below 2%

According to a survey of economists and analysts, as inflation is expected to fall below the European Central Bank's (ECB) 2% target in early 2026, the ECB is set to cut interest rates more than previously anticipated this year, with the deposit rate expected to drop below 2%.

Since June last year, the ECB has cut interest rates seven consecutive times, reducing the deposit rate from 4% to the current 2.25%.

The latest survey indicates that respondents generally expect the ECB to continue cutting interest rates in June and September, further lowering the deposit rate to 1.75%.

However, analysts predict that the ECB will raise interest rates back to 2% by the first quarter of 2027.

Additionally, analysts have revised down their inflation expectations, believing that the average inflation rate in the first two quarters of 2026 will be 1.7% and 1.8%, respectively, lower than the 1.9% projected in the previous survey.

ECB officials have recently expressed optimism about inflation and are preparing for further interest rate cuts, possibly as early as June.

Gediminas Simkus, President of the Bank of Lithuania, stated last Friday that "another interest rate cut is needed in June" due to "clear deflationary forces" such as the eurozone not yet fully feeling the impact of US tariffs, coupled with falling energy prices and a stronger euro.

Simkus also noted that "there is a possibility of another interest rate cut after June," although the timing remains uncertain. He suggested that this move could occur in July, September, or even December.

Olli Rehn, Governor of the Bank of Finland, also stated last Friday that he would support an interest rate cut next month if the ECB's new economic forecasts confirm the prospects of deflation and sluggish economic growth.

However, Isabel Schnabel, a member of the ECB's Executive Board, expressed caution, advocating for a "prudent response" strategy, arguing that it is more appropriate to maintain interest rates at current levels in a highly uncertain environment.

Greg Fuzesi, an economist at JPMorgan Chase, said on Monday, "For the ECB to continue cutting interest rates after June, it still needs data to show downside risks to support this decision. We still believe this will happen, even if Schnabel requires significant convincing to support an interest rate cut in June."