PIMCO: Inflation largely under control, ECB poised to cut rates for last time in this cycle
The European Central Bank (ECB) is expected to cut its deposit rate by 25 basis points on Thursday, from 2.25% to 2.00%.
According to Konstantin Veit, portfolio manager at PIMCO, this is very likely to mark the last interest rate cut in the current cycle: “The 2% interest rate is seen by most members of the central bank as the middle of a neutral policy zone in the eurozone.” PIMCO considers the market expectation of a final policy rate of around 1.7% to be “reasonable”.
The minutes of the ECB meeting in April show that most board members are convinced that the inflation shock is largely under control. At the same time, the economic outlook remains fragile. The announced US import tariffs threaten to undermine confidence and economic activity. According to Veit, signs of cooling wage growth, lower energy prices and a stronger euro also point to downside risks to price stability.
During the meeting, the ECB will also present new economic projections. These are expected to show a weaker growth path, with downside risks from trade conflicts, geopolitical tensions and cautious consumers. Nevertheless, PIMCO expects inflation to remain around the target in 2027, despite “less favourable economic prospects for 2025 and 2026”.
“The current situation leaves little room for clear forecasts,’ he says. ‘We believe that the ECB will remain cautious for the time being and will only take new steps based on how the economy develops and what figures become available.”
