The ECB is cutting rates tomorrow, full stop. Traders are already treating the decision as done, with a 99% probability priced in for a 25 basis point trim.

That drops the deposit facility rate to 2%, exactly half of what it was in mid-2023 when inflation was out of control and the ECB was scrambling. The number’s baked in, but the real question now is: What happens next?

According to CNBC, the cut comes as inflation in the eurozone has dropped to 1.9% in May, nearly hitting the ECB’s 2% target. But growth still sucks. GDP in the bloc ticked up just 0.3% in Q1 2025, the most recent estimate. That’s weak. And the world around the euro area is not helping either. 

The White House under Donald Trump has brought tariffs back into the global conversation. If the U.S. goes ahead with another round of trade penalties, EU retaliation is expected. Add to that Germany’s big fiscal reset and the EU’s rearmament spending, and you’ve got an economic outlook held together by duct tape.

ECB gives no clear path beyond tomorrow

No one expects the ECB to spell out where this is going. The market wants guidance. The Governing Council isn’t giving any. Not this week. Some analysts see another cut as early as July. Jack Allen-Reynolds, who works as deputy chief eurozone economist, said the latest inflation numbers opened the door for the next move to come sooner rather than later.

But Barclays economists are betting on a slower pace. They said the ECB will avoid any promises. “We believe the ECB will remain non-committal on its policy path and continue to follow a meeting-by-meeting approach to maintain flexibility and optionality in policy calibration.” That’s corporate speak for “don’t expect a roadmap.”

Their base case? Keep rates flat in the summer, then drop them two more times by the end of the year—September and December, 25 basis points each. That’d bring the rate well below 2%, but only after a long pause.

There’s backup for that view. BofA Global Research also said in a note this week that “the ECB is running out of reasons not to go below 2%.” They’re expecting further cuts but doubt there’ll be any hints tomorrow. “We expect some acknowledgment that door is open to move rates below 2%, but a very explicit signal is unlikely. Uncertainty on tariffs will give the Governing Council enough cover to not pre-commit to more.”

The ECB’s new staff projections are coming too, same day as the rate decision. That will include their latest expectations on both inflation and economic growth. The OECD already threw out its own numbers—1% growth and 2.2% inflation for the eurozone in 2025.

Rate cuts will hit loans and savings differently

If you’re a consumer, what matters isn’t just that the ECB is cutting. It’s how that cut trickles down to your loans or deposits. Bas van Geffen, a senior macro strategist at RaboResearch, said, “The interest rate on short-term deposits tends to follow the deposit rate quite closely.” That means if the ECB cuts rates by 0.25% tomorrow, banks could quickly reduce what they pay you on savings accounts.

There’s a lag, but it’s short. “A week after the ECB meeting, the policy rate goes into effect. So, if the ECB cuts the deposit rate Thursday, banks will receive 0.25% lower interest on their deposits with the central bank. This may cause them to lower the interest rate they pay on savings accounts as well,” Bas explained.

But if you’ve got long-term products—like a 10-year fixed mortgage—don’t expect the same reaction. Those rates are built on expectations, not just today’s headline move. “The market has long been expecting the ECB to cut rates this week,” Bas said.

That anticipation is already baked into long-term rates. So don’t expect them to suddenly change tomorrow. “That also means that these long-term rates do not necessarily change after this week’s policy decision,” Bas added.

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