The European Central Bank (ECB) is anticipated to reduce interest rates to 2% at its upcoming meeting, marking the eighth cut in its current easing cycle and the seventh consecutive reduction.

This forecast reflects the majority opinion of analysts from investment firms and banking institutions ahead of the meeting.

Since the ECB began normalizing its monetary policy a year ago, it has increased rates to a peak of 4%, the highest since 2008. Following an initial reduction in June, the ECB paused cuts in July but has since implemented rate decreases at every meeting held.

These reductions have generally been in increments of 25 basis points.

With the expected cut on Thursday, the deposit facility rate—often viewed as a benchmark for the ECB's monetary policy—will be adjusted down to the 2% mark.

The ECB’s Governing Council is expected to proceed with the interest rate cut despite some members advocating for a pause, including German board member Isabel Schnabel, who has expressed a preference to maintain current levels.

Analysts from A&G Global Investors comment that while a broad consensus for the decision exists, it may not be unanimous.

Furthermore, a faction of ECB officials, referred to as the "hawks" from Frankfurt, is likely to push for a pause given the robust economic performance reported in the first quarter.

However, prevailing expert opinion weighs toward a preventive rate cut.

Inflation in the eurozone has recently decreased, with general inflation recorded at 1.9% in May, the lowest level since September 2024. Specific national figures show Germany at 2.1%, France at 0.6%, Italy at 1.7%, and Spain at 1.9%.

Despite the lack of complete agreement within the council, it is projected that the interest rate will land at the upper end of the ECB’s defined neutral range of 1.75% to 2.25%.

This range is designated as neither stimulative nor restrictive for economic growth.

General Financial Group warns that, even within this neutral territory, there is diminishing room for further rate cuts.

The projected cut on Thursday, while widely anticipated, presents uncertainty regarding the ECB's course in its upcoming meetings scheduled for July, September, and December.

Market expectations are leaning toward another reduction in the fourth quarter, indicating a pause in the rate-cutting efforts during the meetings in July and September.

Pimco suggests that the cut this week signifies the ECB's potential entry into the final phase of its rate-cutting cycle, as many council members view the 2% figure as the midpoint of the neutral range appropriate for the eurozone.

Mediolanum International Funds expect the ECB to adopt a cautious “wait-and-see” approach, delaying any subsequent rate changes until more insights emerge from trade developments, with further cuts not likely before October.

Despite these expectations, the recent strengthening of the euro, falling oil prices, and potential trade tariffs are expected to keep the ECB oriented towards easing until at least the start of next year.

Market predictions indicate that the ECB will halt rate cuts in early 2026, stabilizing the rate at 1.5%, a forecast supported by experts at Mediolanum International Funds.

MFS Investment Management anticipates a pause in July, unless trade negotiations show significant improvement, followed by another cut in September, and possibly one more in the fourth quarter.

In light of ongoing trade tensions, the ECB is set to revise its macroeconomic forecasts for the coming years.

In March, it had projected a growth of 0.9% for eurozone GDP in 2025, followed by 1.9% in 2026 and 2% in 2027. Inflation figures were estimated at 2.3% for 2023, and 1.9% and 2% for the following two years.

Experts suggest that the institution may lower its inflation estimates due to declining energy prices, the appreciating euro, and observed moderation in negotiated wage growth across the eurozone.

Regarding economic growth, analysts at Pimco predict a weaker short-term outlook for the eurozone, citing risks posed by trade tensions, geopolitical uncertainty, and cautious consumer behavior.