(Bloomberg) -- When to start lowering interest rates is just the first bone of contention among European Central Bank policymakers who also look set to spar over how exactly to dial back their unprecedented spate of monetary tightening.

Officials are currently hammering out whether to begin cuts in April or June — a comparatively simple decision considering they must also weigh the size of their steps, how quickly they want to proceed and where borrowing costs will end up. 

The eventual strategy hinges on the pluses and minuses of acting sooner and slower versus later and more rapidly. The Governing Council’s 26 members must also find a way of signaling their intentions without reneging on repeated pledges to be steered by data.

The task is complicated by a host of risks — from wage negotiations to a stuttering euro-zone economy and Red Sea shipping disruptions — that could hijack inflation’s return to 2%. The Federal Reserve and the Bank of England add yet more uncertainty as they, too, deliberate over when and how to start easing.

“All doors are open when it comes to the pace of rate cuts and the size of any steps,” said Anatoli Annenkov, a senior economist at Societe Generale who predicts the ECB will ease once every three months from the third quarter. “It’s a debate to be had between hawks and doves, based on the data.”

There were widely diverging views on what the way down will look like among analysts polled before the ECB last set policy in January. While some saw reductions at every meeting, once they start, others expected timeouts every other session.

Projections for how far the deposit rate will fall from its current high of 4% also differed significantly: For mid-2025, they range from 1.5% to 3.25%. Deutsche Bank economists now even see the opening two reductions being 50 basis points each.

Some clarity may emerge from the ECB’s March 6-7 gathering, where fresh quarterly projections will help settle the argument between officials pushing for a move the next month and those who want reassurance from additional inflation readings and salary figures.

The latter camp, so far, appears to be larger, and includes President Christine Lagarde and Chief Economist Philip Lane, who’ve hinted at June as the more likely option. They’re also perhaps mindful of the ECB’s tardiness in responding to the latest spike in prices. 

Latvia’s Martins Kazaks has warned against a rerun of the 1970s and 80s, when rates were lowered prematurely, inflation bounced back and borrowing costs were hiked all over again.

Kazaks and other hawks have floated the idea of holding fire for now to ensure inflation really is on track, but then catching up by using bigger increments.

“There are many ways to get to 2%,” he told Bloomberg Television in January. “You could do earlier smaller steps or you could do somewhat later larger steps.” 

One danger in moving more quickly is causing a panic that the euro area isn’t headed for the soft landing that policymakers have expressed confidence in achieving. Officials could also face accusations of acting too late, once again.

Doves like Portugal’s Mario Centeno favor a “gradual” process beginning sooner — worried that delay could see price gains undershoot the target.

“Something would have to happen for the ECB to cut rates in bigger steps, like a quick deterioration of the economic situation or a sudden, strong retreat of inflation,” said Joerg Angele, an economist at asset manager Bantleon. “The economy may look weak, but the labor market is resilient. So there’s enough time to do it slowly.”

He predicts four quarter-point cuts starting in April, bringing the deposit rate to 3% by September — a level he expects the ECB to hold at least through end-2025. 

Others see a much lower finishing point, presaging how far opinions on the Governing Council may diverge.

“The natural rate of interest in the euro area — with its deteriorating demographics and nonexistent productivity growth — is close to 1% at best, and this is where the ECB’s rates will likely be heading in a medium term,” said Nerijus Maciulis, chief economist at Swedbank.

He also anticipates a first move in April but then sees cuts at every meeting until June 2025, leaving the deposit rate at just 1.5%. He doesn’t exclude bigger steps, saying that “it’ll become obvious in the coming months that there are no inflationary factors whatsoever.”

Pauses are indeed probable, according to Croatian central bank Governor Boris Vujcic. And as long as inflation retains the power to surprise in either direction, unpredictability will persist.

“They can agree to go early if they see any value in that, and if they’re afraid of getting it wrong, they can take a pause to wait for data to see if they confirm the trend,” said SocGen’s Annenkov.

“What’s clear is that they can’t get away from data dependency,” he said. “The market wants clarity but it won’t get it, unless the outlook shifts drastically.”

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