BoA sees two ECB rate cuts in 2027, bucking market consensus

Bank of America now expects two 25-basis-point (bp) rate cuts from the European Central Bank (ECB) in 2027, scheduled for March and June, according to a research note published on June 2, 2026. The new projection replaces a single reduction previously anticipated for March 2026 and sharply diverges from market consensus, which expects rates to remain on hold or even edge slightly higher.

A notable revision from BoA’s previous call

In its June 2, 2026 note, Bank of America materially reshaped its view of the European monetary cycle. The US bank had previously expected a single rate cut in March 2026. It now anticipates two consecutive 25-bp cuts in 2027, scheduled for March and June. The revision marks a significant shift in the bank’s approach to ECB policy and reflects a more patient but ultimately more accommodative stance.

More importantly, the new projection diverges sharply from market consensus. According to BoA strategists, financial actors expect the ECB to keep its policy rates at their current level throughout the forecast horizon, and current derivatives pricing even suggests slight rate hikes for 2027.

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The gap with market consensus

The gap between BoA’s forecast and consensus is measured both in cuts and in hikes. Where BoA sees two cuts in 2027, the market sees virtually no move — even slight tightening. This divergence illustrates the ongoing debate over the disinflation trajectory in the eurozone and the ECB’s ability to bring inflation back to its 2 % target without excessively throttling growth.

The two pillars of BoA’s analysis

BoA economists base their call on two fundamental pillars that condition the timing of rate cuts.

Pillar 1 — An expected slowdown in Germany

Strategists expect the ECB to proceed with these cuts when there is clear evidence of a slowdown in Germany’s growth momentum. The German economy, heavily influenced by fiscal policy and industrial factors, often acts as a thermometer for European economic health.

Pillar 2 — Core inflation durably below target

Second, BoA anticipates that, by then, core inflation — which excludes volatile items such as energy and food — will have remained below the central bank’s 2 % target for an extended period. This condition is viewed as essential to justify further monetary easing.

« The ECB has shown reluctance to cut rates before economic growth has clearly peaked. A rate cut in June 2026 appears unlikely in the absence of significant economic surprises. »

Bank of America, research note, June 2, 2026

Risk of earlier cuts: September or December 2026

Bank of America acknowledges the risk of earlier rate cuts, though it views these scenarios as unlikely in the short term. The analysts nevertheless suggest that reductions in September or December 2026 represent more plausible windows. By those dates, the undershoot in inflation would have persisted long enough to justify ECB action.

This intermediate scenario would allow the ECB to preserve its anti-inflation credibility while accommodating a growth slowdown, without signaling an abrupt monetary pivot.

The June 2026 decision and the Governing Council’s stance

At its June 2026 policy meeting, the ECB cut all three of its policy rates by 25 basis points. Effective June 11, 2026, the new levels are:

The decision was taken unanimously by the Governing Council, with the notable exception of Robert Holzmann, a member known for his stricter (hawkish) monetary stance, who voiced his dissent.

The ECB’s short-term inflation forecasts were revised downward for this year and the next, against a backdrop of euro strength since March and lower oil prices. These disinflationary developments are nonetheless viewed as temporary, with a return to the 2 % target expected by 2027.

A growing divergence with the US Federal Reserve

BoA’s view fits into a broader context of potential divergence among the world’s major central banks. While the US economy continues to expand at a steady pace, European growth is slowly recovering from a near-recession base. Inflation, though still elevated in both regions, has fallen more sharply in the eurozone and is closing in faster on the ECB’s target.

The Governing Council indicated that policy rates are now « in the right place, » hinting at a potential pause at the July meeting. According to JPMorgan Asset Management analysis, the ECB is likely nearing the final rate cut of the current cycle, with a possible terminal cut in September following a July pause.

In this context, the deposit facility rate has reached its lowest level in two and a half years. For euro cash investors, this rate cut mechanically translates into lower deposit rates at the start of the next reserve maintenance period, weighing on money-market returns.

Conclusion: toward a slower easing cycle than the market anticipates

BoA’s revision highlights an apparent paradox: the US bank projects rate cuts that are both later and sharper than what consensus currently prices in. If BoA economists see the ECB responding to a German slowdown and structurally low core inflation, the market remains anchored to a more cautious stance, waiting for further evidence of disinflation.

The next major test will come at the July 2026 meeting, when the Governing Council will have to confirm — or deny — its reading that rates are now « in the right place. » Any deviation from that signal will weigh on the euro curve and on derivatives pricing, which may eventually have to realign with the trajectory sketched out by BoA.

Sources

• Investing.com — Bank of America now sees two ECB rate cuts in 2027
• Bank of America Private Bank — Market Update
• Wellington Management — The ECB cuts rates
• JPMorgan Asset Management — ECB sitting in the right place for now
• Morgan Stanley — Thoughts on the Market

This article is published for informational and educational purposes only. It does not constitute investment advice. Do your own research (DYOR) before making any decision.