All signs point to the European Central Bank (ECB) holding interest rates steady again this Thursday. Policymakers on the Governing Council appear satisfied with the current stance of monetary policy, though revisions to GDP and inflation forecasts – both upwards – are possible.
Key Takeaways
- ECB is expected to pause again on Thursday.
- Eurozone growth has proven more resilient than expected.
- Inflation remains close to the 2% target.
- High uncertainty supports a wait-and-see approach.
- Upward revisions to growth and inflation forecasts are likely.
- President Christine Lagarde expected to reinforce market pricing: no cuts in 2025.
Cuts in September “Almost Impossible”
Markets had speculated about a possible rate cut in September, but analysts see this scenario as virtually impossible. The bar for another reduction is set so high that even a “perfect jump by Armand Duplantis” would not clear it.
At the July meeting, the ECB left rates unchanged for the first time in over a year, and Lagarde’s tone was subtly hawkish. She highlighted the resilience of the eurozone economy, which should be further supported by massive German fiscal stimulus. Policymakers also appear increasingly convinced that inflation will converge toward the 2% target in the medium term.
Eurozone Growth Proving Stronger
Since the July meeting, incoming data has reinforced the case for patience. Inflation remains close to target, and price pressures are proving less intense than in the U.S. The eurozone economy is holding up better than feared, with resilient domestic demand, a strong labor market, and modest business activity growth.
High Uncertainty Supports a Pause
Risks remain. The recent U.S.–EU trade deal, although highly asymmetric, removed some uncertainty and could support corporate planning despite potential tariff effects.
At the same time, questions linger over how much German fiscal spending will lift growth – the impact may not show up in data until 2026. Meanwhile, fresh political turbulence in France, where the government has collapsed again, adds to uncertainty. Journalists will almost certainly press Lagarde on this, though markets have so far reacted calmly.
Forecast Revisions Possible
On Thursday, the ECB will release updated economic projections. Given recent PMI surprises and a more optimistic view of the economy, a slight upward revision to 2025 GDP growth is likely. Inflation forecasts may also edge higher, reflecting stronger economic momentum and modestly higher price pressures.
Lagarde Likely to Back Market Pricing
Forward guidance is expected to mirror July’s messaging: the ECB is in a “good place,” with rates likely to remain unchanged for some time. Lagarde is unlikely to push back against current market pricing, which sees no cuts before Q1 2026. Analysts at Ebury believe the rate-cutting cycle may already be over.
Timeline
- Policy decision: Thursday, September 11, at 14:15 CET.
- Lagarde’s press conference: 14:45 CET.
Author: Matthew Ryan, CFA – Head of Market Strategy, Ebury
Source: CEO.com.pl
