LIVE MARKETS-Euro Zone economic woes will prompt ECB rate cuts, Morgan Stanley says

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

EURO ZONE ECONOMIC WOES WILL PROMPT ECB RATE CUTS, MORGAN STANLEY SAYS

Morgan Stanley foresees the European Central Bank (ECB) will cut interest rates in April, with the benchmark rate expected to reach 2.0% by June 2025, down from the prior forecast of 2.25%, spurred by unexpectedly weak inflation and growth data.

Euro zone inflation dipped slightly less than anticipated last month, cementing the case for another ECB interest rate cut on Thursday and fueling expectations for further policy easing in the coming months.
Following June, Morgan Stanley analysts anticipate that the ECB will reduce rates more gradually, limiting cuts to projection meetings only.

"We do not think that the ECB will embrace the notion that rates can be cut below neutral already in June, since concurrent inflation will not have converged to target by that time according to our forecast", Morgan Stanley analysts says.

Since last June, the ECB has cut interest rates five times to counter slowing inflation, and with economic growth weakening, further cuts are expected as the bank shifts focus from inflation concerns to weak economic growth.

It will take the Council until the December meeting to cut rates with an explicit view that a move below neutral is warranted, brokerage says.

Morgan Stanley maintains its forecast that the ECB's terminal rate, the final target rate for this cycle, will be 1.0%, but now expects this to be reached in the second quarter of 2026 instead of the first quarter.

(Joel Jose)

FOR TUESDAY'S EARLIER LIVE MARKETS POSTS:

BENCHMARK TREASURY YIELD ON A 6-WEEK LOSING STREAK - CLICK HERE

"EITHER WAY, THE EU CONSUMER PAYS" - CLICK HERE

SWISS BULLS CHARGE ON DEFENSIVE PLAYS - CLICK HERE

IS THE EURO STRENGTH A SIGN OF 'ASSERTIVENESS'? - CLICK HERE

VOLATILITY POPS, STOXX DROPS - CLICK HERE

BEFORE THE BELL: TARIFF WOES, DEFENCE POINTS HIGHER - CLICK HERE

NEW TRUMP TARIFFS TAKE EFFECT, EU ALSO IN CROSSHAIRS - CLICK HERE