Synopsis:

Credit Agricole expects the ECB to cut rates by 25bps in March, in line with widespread market expectations. However, the pace of future cuts remains unclear, with debates emerging on whether to proceed with a gradual or more forceful easing cycle.

Key Points:

1️⃣ March Cut Confirmed ✅

• The ECB is widely expected to cut rates by 25bps, as most Governing Council members have indicated support for this move.
• Inflation is gradually converging towards the ECB’s 2% target, justifying a measured approach to easing.

2️⃣ Debate on Future Rate Path 🤔

• Diverging views within the ECB: Some officials support continued gradual easing, while others argue for a potential pause.
• The ECB’s neutral rate estimate (released in February) could play a role in shaping discussions, though it is not official guidance.

3️⃣ Scenarios for Future Cuts 🔮

• Base case: A March and April cut, bringing rates down progressively.
• Alternative scenario: The ECB skips April and cuts only in June due to:
  • Uncertainty over the economic outlook and the need for updated projections.
  • The international environment, particularly Fed policy adjustments.
  • The ECB approaching its neutral rate, possibly warranting a slower pace of easing.

Conclusion:

While a March 25bps cut is almost certain, the ECB's next moves remain uncertain. Credit Agricole expects either an April or June cut, depending on economic data, Fed decisions, and internal ECB discussions on the terminal rate (likely stopping at 2.25%).