Synopsis:

Morgan Stanley expects the ECB to deliver a 25bp rate cut at its March meeting, while also adjusting its statement language to reflect a more cautious stance on future easing. Additionally, growth projections are likely to be downgraded, with inflation now expected to reach the 2% target only by Q1 2026.

Key Insights:

1️⃣ ECB to Cut Rates by 25bp 💳

• A widely anticipated 25bp rate cut is expected, bringing the deposit rate to 2.50%.

2️⃣ Statement Language to Change 📝

• The ECB may remove or soften restrictive policy language.

3️⃣ Growth Forecasts Likely to be Revised Down 📉

• The GDP outlook is expected to be lowered, reflecting weak demand across the Eurozone.
• The ECB may acknowledge slower-than-expected economic recovery.

4️⃣ Inflation Target Delayed to Q1 2026 🏁

• Inflation is now forecasted to reach the 2% target only in Q1 2026, later than previous projections.
• This could justify a slower pace of rate cuts beyond March.

Conclusion:

Morgan Stanley expects the ECB to cut rates by 25bp but adopt a more cautious stance on future easing, as growth weakens and inflation remains above target until 2026. Markets will focus on how the ECB frames the next steps in its monetary policy trajectory.