Market Insight: ECB to Avoid Cutting Rates by More Than 25 Basis Points Unless Labor Market Deteriorates

UniCredit economist Tullia Bucco argues that the European Central Bank will be convinced to cut interest rates more aggressively only if the labor market deteriorates significantly. According to recent business surveys, the Eurozone is bracing for a recession. While this scenario may provide the ECB with a reason to cut rates by more than 25 basis points at upcoming policy meetings, the bank is likely to refrain from such action unless the labor market worsens further. Bucco stated, "We confirm our expectation that the deposit rate will fall to 2.5% by March and to 2% by September 2025."