Bank of America has altered its forecast for the European Central Bank's monetary policy path, now expecting two rate cuts of 25 basis points each to be delivered in March and June 2027. The bank's most recent projection replaces an earlier forecast that had a first cut penciled in for March 2026.
The revised outlook stands in contrast to prevailing market expectations. Market consensus currently anticipates that the ECB will hold policy rates steady through the forecast window, while market pricing suggests a small bias toward higher rates in 2027 rather than easing.
According to Bank of America analysts, the timing of the cuts hinges on observable weakening in growth momentum in Germany, with the bank pointing specifically to fiscal influences as the driver of that slowdown. In addition, the analysts say that by the time cuts are enacted, inflation - and particularly core inflation - would have been undershooting the central bank's target for an extended stretch of time.
Why the delay to 2027?
Bank of America frames the later start to rate reductions as a function of the ECB's apparent reluctance to loosen policy before there is clear evidence that economic expansion has passed its peak. That stance makes a cut as early as June 2026 unlikely in the absence of substantial, unexpected deterioration in activity.
Still, the bank acknowledges the possibility of earlier easing, describing such outcomes as risks to its central case, but characterizing them as improbable in the near term. It also identifies a window in late 2026 - September or December - as more plausible alternative timings for initial rate relief, since by then any persistent undershoot in inflation would have been evident for a longer period.
Implications and framing
Bank of America's updated scenario underlines two conditions it views as prerequisites for ECB rate reductions: a demonstrable loss of growth momentum in Germany caused by fiscal developments, and a sustained undershoot of inflation targets, particularly on the core measure. The bank's timeline shifts the expected start of easing roughly a year relative to its prior forecast and diverges from market pricing that does not currently anticipate cuts over the same horizon.
All projections presented by Bank of America are subject to economic developments and upside or downside risks; the bank highlights the potential for earlier cuts as a risk to its baseline while also noting that significant surprises would be required for cuts to occur as early as mid-2026.
Note: This article reports the projections and commentary of Bank of America analysts regarding European Central Bank policy and does not add new numerical forecasts beyond those attributed to the bank.