"Hawkish" speech ignored? Morgan Morgan expects the European Central Bank to cut interest rates in June next year

The ECB will cut interest rates for the first time by 25 basis points in June 2024, Morgan Stanley economists said in a note on Sunday, adding that rates would "fall all the way down" to 2.0 per cent by September 2025.

"We think the ECB has peaked at 4 per cent," said Jens Eisenschmidt, chief European economist at the bank. "From now on, it is slowly shifting its focus from current inflation to forecasts."

Many European Central Bank officials have stressed the need for further interest rate hikes

Last Friday, Lagarde said that keeping the deposit rate at 4 percent should be enough to contain inflation, but that officials would consider raising borrowing costs again if necessary.

Ms Lagarde said: "If we stay where we are for long enough it will make a significant contribution to getting inflation back to our 2 per cent target, and of course we can discuss that. If there is a major shock, depending on the nature of the shock, we will have to revisit that."

Another European Central Bank official, Bank of France Governor De Gallo, said on the same day that there would be no further interest rate hikes unless there were new shocks, but it was too early to discuss a rate cut.

Vice President says it seems too early to discuss rate cuts

The European Central Bank may be at peak interest rates after a record tightening frenzy. Policymakers, including ECB President Christine Lagarde, have said borrowing costs will remain at current levels for some time, although markets are betting on a rate cut in April.

"In these highly uncertain times, we face geopolitical shocks and I think we have to be very careful in our communication," said Luis de Guindos, ECB vice-president. "So I don't prejudge the future path of interest rates. I want to stress that it is too early to talk about a rate cut."