The European Central Bank struck a dovish tone last week, backed up by comments from arch-hawk Robert Holzmann on Friday. Money markets are continuing to price in a fall in the key ECB rate to 1.75% by September next year, with a hold beyond that. Questions remain over what the central bank considers its “neutral rate” and whether it could go below that to support economic growth.The European Central Bank delivered an expected quarter-point interest rate cut this week — and alongside the announcement came several indications that rates will swiftly move even lower early next year.ECB President Christine Lagarde did note during her Thursday press conference that policymakers gathered in Frankfurt did not believe the fight against inflation is fully over, with services inflation still a concern.However, on the whole, it was the most dovish meeting of the current cycle, not least because the ECB’s fresh macroeconomic projections forecasted lower rates of inflation and economic growth both this year and next.Economists also jumped on the removal of the ECB’s message that the central bank must “keep policy rates sufficiently restrictive for as long as necessary.” Lagarde stressed that there were downside risks to the already-weak euro zone growth outlook, but said the inflation picture had significantly improved and included upside risks. She also said that a larger, half-point cut had been debated, and that Governing Council (GC) members unanimously voted to reduce rates.The new ECB staff forecast, meanwhile, put average headline inflation just above target at 2.1% in 2025, with stronger price rises expected at the start of the year suggesting it could fall below target later in the year.The dovish shift was emphasized Friday when Austrian central bank chief Robert Holzmann — widely perceived as the ECB’s arch-hawk and the only Governing Council member to vote for a rate hold rather than a cut in June — told reporters there would be no danger in cutting rates next year if the economy progresses as expected, according to Reuters.Where is neutral?Holzmann also said markets had a “similar assessment to the central bank’s” that interest rates will fall toward a neutral level — when monetary policy is balanced between boosting and restricting growth — of around 2% next year.The ECB cut the deposit facility — its key rate — to 3% on Thursday. What constitutes the neutral rate has been a key point of debate in recent months, and Lagarde said Thursday that while it had not been discussed at the December meeting, staff saw it between 1.75% and 2.5%.A further question for market participants is whether the ECB will take rates below this neutral level if inflation cools even further and the growth outlook deteriorates, as has been floated by France’s central bank governor, Francois Villeroy de Galhau.This week’s messaging has broadly confirmed existing market bets on the ECB’s rate-cut plan for 2025.According to LSEG data, money markets are continuing to price in a fall in the key ECB rate to 1.75% by September next year, with a hold beyond that.But some analysts said there was now support for rate cuts going beyond that.Deutsche Bank economists said in a Friday note that the ECB was on course for sub-neutral rates in 2025, given the trend for weak growth and below-target inflation.They added that their baseline outlook was for a 1.5% rate at the end of 2025 via quarter-point cuts, but that a half-point move remained possible.Dean Turner, chief euro zone and U.K. economist at UBS Global Wealth Management, stopped his forecast at a rate of 2% in June, but said risks were now “tilted towards the ECB having to do more, not less, to support the economy in 2025” — likely to mean further cuts later in the year rather than larger moves earlier on.However, Kamil Kovar, senior economist at Moody’s Analytics, argued in a note that stubborn core inflation would continue to spur ECB caution next year.“We think that after March, the battle over how far to lower rates will start in earnest. We have no cut in April and the last cut in June, leaving rates at 2.25%,” Kovar said.