Deutsche Bank said that lowering inflation expectations could open up space for the European Central Bank to keep interest rates unchanged this year.

Deutsche Bank has stated that the drop in oil prices has led to a downward revision of inflation expectations. If this trend continues, it could provide room for the European Central Bank to maintain interest rates at 2.25%, especially after already implementing a rate hike. Strategists such as Soniya Sadeesh wrote in a report released on Thursday that over the past week, the 1y1y and 2y1y harmonised consumer price indices have fallen below 2%. They stated that, of course, the ECB was prepared to overlook future inflation readings below the target level last year, with policy focus still on second round effects and core indicators. They also mentioned that this interpretation is already reflected in market pricing, with expectations for another rate hike before the end of the year exceeding once.