Market Analysis: The European Central Bank's interest rate may need to be reduced to below neutral

PGIM Fixed Income stated in a report that if the repeatedly predicted economic acceleration by the European Central Bank fails to materialize, its benchmark interest rate may need to be lowered below neutral. The bank predicts that the ECB's neutral interest rate range will be between 1.5% and 2.5%, slightly lower than the current deposit rate of 2.75%. By the end of this year, it is market-priced at 1.91%. The report states that given the weak macroeconomic situation, Europe is more susceptible to intensifying trade tensions. Nevertheless, Europe is better prepared than during the last round of tariff implementation and has significant influence in negotiations or returns.