The European Central Bank (ECB) Governing Council will meet on June 6 to likely decide on reducing its key interest rates by 25 basis points, signaling the start of normalizing restrictive monetary policy to curb inflation.

With the reduction anticipated by all economic analysts, attention focuses on the ECB's messages regarding the future path of easing monetary policy.

Driven by a surge in inflation, which reached record levels in 2022, the ECB implemented ten rate hikes totaling 450 basis points since July 2022, sending its key rates to record highs. Following the last increase in September, the ECB kept its rates unchanged for five consecutive sessions.

Economist and KPMG board member Tasos Giaseimidis told Cyprus News Agency that despite a slight rise in Eurozone inflation in May, the rate cut "should be considered certain."

According to a note from German investment bank Berenberg, the ECB has "de facto" pre-announced a 25 basis point cut this coming Thursday but will provide limited clarity on future monetary policy prospects. A further reduction in July is deemed "unlikely."

Despite the rate cut, the monetary policy cycle will remain restrictive, albeit at a more moderate level.

In this context, Giaseimidis noted that "this reduction has more of a symbolic meaning, as the period of high interest rates is expected to continue for some time. The reductions will not match the speed and magnitude of the hikes seen over the last three years."

"Borrowers," he said, "should continue managing their budgets, considering that the high-interest environment will persist for a considerable period. Decisions for reductions by central banks will be gradual and over time. Many have already discussed appropriate arrangements with banking institutions. Therefore, the ECB's decision signals a relaxation of monetary policy, but in a very cautious manner."

In its latest note, Berenberg maintained its forecast for a deposit rate cut from the current 4% to 3.25%, with quarterly reductions in June, September, and December following the publication of the ECB's quarterly forecasts.

The main refinancing operations rate, as well as the rates on the marginal lending facility and the deposit facility, are at 4.50%, 4.75%, and 4.00%, respectively, levels established after the September 14 session decisions.