Are we seeing the last interest rate cut? After seven consecutive cuts, the ECB is about to decide on its next move, says Luca Pesarini, Chief Investment Officer (CIO) of ETHENEA Independent Investors S.A.:

There is almost a 100% probability that the market is firmly expecting a further 25-basis-point easing in June — and rightly so.' Current economic data provides the central bank with sound reasons for this move.

Inflation trends are working in the ECB's favour: since the beginning of the year, crude oil prices have fallen by around 11%, while the euro has appreciated by around 10% against the dollar — both of which have a deflationary effect. Core inflation remains at a stubborn 2.8%, but the trend is pointing downwards.

The outlook for economic growth is mixed. Although the first quarter saw surprising growth of 0.3%, the mood has since darkened. The announced US tariffs are causing additional uncertainty. Although reciprocity has been suspended for the time being, failure of the negotiations could lead to renewed escalation, so the trade conflict remains a major risk.

Germany's planned EUR 500 billion infrastructure package could promote growth, but it takes time for such programmes to reach the real economy.

Following the June cut, the deposit rate would be set at 2.0%, which is exactly midway between the ECB's defined neutral range of 1.75 to 2.25%. This would be a natural stopping point. ECB Director Isabel Schnabel recently summarised what should happen afterwards, stating that interest rates should remain 'firmly in the neutral range'. Further easing would only be possible if there were a 'sharp deterioration in the labour market' or 'a downward de-anchoring of inflation expectations'. Neither of these scenarios is currently foreseeable.

Conclusion: The way is clear for an interest rate cut in June. Weaker economic data, falling energy prices and a stronger euro make this interest rate cut possible. After that, the ECB will probably wait to see how trade talks with Washington develop, and whether the announced economic stimulus packages are effective. Further action would only be necessary if the situation were to deteriorate significantly; otherwise, this interest rate cycle will reach its crossroads.