The European Central Bank left interest rates unchanged at 2%, matching market expectations. Analysts broadly believe we are nearing the end of the rate-cut cycle, though opinions differ on the terminal rate, with forecasts ranging between 2% and 1.5%. The ECB gave no firm guidance on its next steps. Ahead of the meeting, investors were pricing in around 14.5 basis points of cuts, roughly a 60% chance by March 2026. Following the press conference, those odds eased to about 50%, reflecting what was seen as a slightly more hawkish tone.
ECB Statement & Staff Projections Highlights
The policy statement offered little change, with the ECB avoiding any pre-commitment to a future rate path. Staff projections showed modest shifts:
- Core inflation is now forecast at 2.4% in 2025, 1.9% in 2026, and 1.8% in 2027.
- Headline inflation is expected at 2.1% in 2025, 1.7% in 2026, and 1.9% in 2027. This marks an upward revision for 2025 and 2026 but a slight dip in the 2027 outlook.
- Growth is projected slightly weaker in 2026 at 1.0%, while 2027 remains unchanged at 1.3%.
Press Conference Insights
President Christine Lagarde struck a balanced but cautious tone, noting that trade uncertainty has diminished and risks to growth are more even. However, she warned that higher tariffs, a stronger euro, and global competition could still restrain momentum. Importantly, she declared that the disinflationary phase has ended, signalling that inflationary pressures may persist longer than previously expected.
Sources Story
According to sources, the debate over future rate cuts is ongoing, but an October move is seen as premature. Instead, December is viewed as the more realistic point for a substantive policy discussion.
Key Takeaways
The ECB kept rates steady at 2% and avoided locking in a forward path, maintaining its data-dependent stance. Inflation forecasts were raised for 2025–26, while growth expectations softened slightly. Lagarde’s comments reinforced the idea that inflation risks remain sticky, leading markets to temper expectations of early rate cuts. Sources suggest December as the more likely moment for the next meaningful step in the ECB’s policy debate.