European Central Bank report: cutting interest rates twice more could bring rates to a neutral level.

European Central Bank economists said in a report released on Friday that the neutral interest rate may be between 1.75% and 2.25%. The concept of the neutral interest rate may help determine the timing of the end of rate cuts. This means that the deposit rate may be lowered two more times, by 25 basis points each time, to reach the upper limit of the neutral interest rate range. Currently, the European Central Bank's deposit rate is 2.75%. Investors and most analysts believe that rates will stabilize at the midpoint of the 2% range. However, researchers caution against relying too heavily on the neutral interest rate. The neutral interest rate represents the theoretical level of borrowing costs that neither stimulate nor restrict economic activity. European Central Bank economists Claus Brand, Noemie Lisack, and Falk Mazelis stated that while these estimates provide supplemental information for monetary policy decision-making and help communicate monetary policy stance, they should not be seen as a mechanical measure of appropriate monetary policy. They stated: "When implementing monetary policy, decisions must be made based on a comprehensive analysis of data and their macroeconomic impact." As inflation approaches 2%, the European Central Bank has cut rates five times in this cycle. Following the most recent rate cut in January of this year, European Central Bank President Christine Lagarde stated that officials "will act" based on the report released on Friday to help determine policy stance. Lagarde previously set the neutral range between 1.75% and 2.25%. However, since then, some European Central Bank officials have begun to question the effectiveness of the neutral interest rate. Earlier on Friday, European Central Bank Chief Economist Philip Lane warned against focusing too much on the neutral interest rate. He stated that as rates approach levels that no longer pose pressure on economic growth, debates about this theoretical threshold "lose some relevance". In a speech this week, he listed nine factors to evaluate the extent to which the European Central Bank policy is constrained, including transmission to the real economy and credit standards for bank loans. European Central Bank Governing Council member Boris Vujcic also believes that the neutral interest rate will not be a reference for policymakers to determine the direction of borrowing costs. He stated that the neutral interest rate is "a useful theoretical concept", but it does not mean that European Central Bank rates must reach this level.