The banks expect that economic growth and inflation will be significantly impacted, and policymakers are preparing for this year's final interest rate meeting.

The election of Trump as president of the usa has led some observers to speculate whether the european central bank needs to revert borrowing costs to highly stimulative levels if his trade tariff threats come to fruition.

Economists at the banks adjusted their forecasts for the monetary policy in the eurozone on Wednesday, expecting that the current key deposit rate of 3.25% will drop to 1% by early 2026, down from their previous forecast of 1.5%. They wrote in the report that Trump's trade policies will severely impact economic growth and inflation in the eurozone's 20 countries.

TS Lombard economist Davide Oneglia stated that tariffs could even lead to a return to the zero interest rate policy that the european central bank exited in 2022.

In a report on Tuesday, he said: 'If the european central bank is forced to cut rates to the critical level below 2% due to significant economic downside risks becoming a reality, then there seems to be no reason why it would only lower a little bit just below that level. In fact, 1% may be the next target, and the possibility of reverting to a zero interest rate policy will also increase.'

Trump's return to the White House signals that usa policy will enter a protectionist era. Earlier on Wednesday, the president of the deutsche bank, Joachim Nagel, warned that such measures could pose the risk of a derailment of the german economy.

The policymakers of the european central bank will make their final interest rate decision of the year next month, and investors believe that a further cut of 25 basis points is the most likely outcome.

Although there is a possibility of further loosening policies, officials from the European Central Bank remain silent on the pace and magnitude of interest rate cuts. Some have begun to worry about inflation falling back to levels below target, reminiscent of the low inflation environment before the COVID-19 pandemic, which prompted the European Central Bank to initiate unprecedented negative interest rate policies in 2014.

Other economists have also started to lower their interest rate expectations. Deutsche Bank has revised its terminal rate forecast down from 2.25% to 1.5%, believing that 1%-1.75% is the primary landing area for deposit rates.