The European Central Bank (ECB) is poised to maintain its borrowing costs this Thursday, despite a significant slowdown in inflation, setting the stage for a potential rate cut in June.

Amidst a backdrop of cooling inflation, the ECB is expected to keep interest rates unchanged during this week’s meeting, marking the last hold before a potential easing of monetary policy. Since October 2023, the ECB has not altered its key rates, following a series of hikes aimed at controlling surging inflation.

ECB President Christine Lagarde has expressed the need for more data before the governing council can confidently adjust rates. With eurozone inflation dropping to 2.4 percent in March, hopes are rising for a rate cut, but officials are awaiting further data, particularly on wage growth, before making a move.

The ECB’s current deposit rate stands at a historic high of four percent, a response to inflationary pressures exacerbated by geopolitical tensions and supply chain issues. Although inflation has receded from its peak of over 10 percent in late 2022, the ECB projects a return to its two-percent target by 2025.

The high cost of borrowing has strained the eurozone economy, which narrowly escaped a recession in the latter half of 2023. Germany’s economic struggles have particularly weighed on the region’s performance.

As the ECB deliberates on the timing of rate cuts to foster economic growth without reversing inflationary gains, it looks to other central banks for cues. The Swiss National Bank has already initiated a rate-cutting cycle, while the US Federal Reserve maintains a steady stance in light of a strong economy.

Despite concerns that ECB rate cuts ahead of the Fed could weaken the euro and reignite inflation, experts like Jack Allen-Reynolds of Capital Economics believe the ECB will act independently based on its own data, which currently suggests a weaker economic growth in the eurozone.

The anticipation of ECB rate cuts has shifted focus to the extent and frequency of future reductions, with many predicting three to four cuts of 25 basis points each throughout the year. However, Lagarde has emphasized a data-dependent approach, avoiding any commitment to a specific rate trajectory.