Deutsche Bank expects the European Central Bank to cut its policy rates by 25 basis points to 2.25% at its meeting on 17 April. While the ECB left the door open in March for either a rate cut or a pause, the balance of risks has since shifted decisively in favour of easing.

The economic hit from reciprocal tariffs, elevated uncertainty, and tightening financial conditions appears to be more severe than the ECB had anticipated. Moreover, the assumption that tariffs would prove inflationary is now being challenged, with disinflationary forces increasingly dominant.

Key downside risks include the euro’s rapid appreciation, falling oil prices, and the growing likelihood of trade diversion—all of which weigh on the inflation outlook. Deutsche Bank notes that inflation risks are now clearly skewed to the downside.

While post-tariff-pause guidance may be only mildly dovish, Deutsche Bank stresses that the ECB must remain agile in the face of a complex and evolving shock. The firm maintains its view that the terminal rate will settle at 1.5%, warning that markets may still be underestimating the risk of disinflation.

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The ECB statement is due at 1215 GMT / 0815 US Eastern time