Key Takeaways
- The ECB is expected to hold interest rates steady this week amid stable inflation and political uncertainty.
- Markets imply a cut in December, while many economists doubt further easing in 2025.
- Inflation is broadly on target, but political turmoil in France adds risk.
The European Central Bank is expected to leave interest rates unchanged at its Sept. 11 meeting, marking a second straight pause in the rate-cutting cycle that began in June 2024.
Swap markets are now implying a rate of about 1.8% for December, suggesting a high probability of one cut by year-end. A Reuters poll shows 66 out of 69 economists surveyed expect rates to stay unchanged this month, and 40 of them predict rates will stay on hold for the rest of the year.
A pause “is a decision we can certainly see the logic in, given where inflation is, and the health of the underlying economy,” says Michael Field, Morningstar’s chief European markets strategist.
The expected pause marks a significant shift from mid-July, when nearly 60% of economists polled by Reuters expected a 0.25 percentage point rate cut in September.
“The market’s assessment of further ECB rate cuts has shifted over the summer, mainly because of the tariff deal,” says Tuan Huynh, interim chief investment strategist for Germany, Austria, Switzerland and Eastern Europe at BlackRock Investment Institute. In late July, the EU and US struck a deal to defuse their trade dispute.
Eurozone inflation stood at 2.1% in August, in line with expectations and the ECB’s target of 2%, according to Eurostat’s flash estimate. Core inflation slowed to 2.3%, slightly below forecasts. ECB staff will also present new quarterly inflation and growth forecasts on Sept. 11, which economists expect to remain largely unchanged.
What Are the Key ECB Interest Rates?
After eight rate cuts in just over a year, the three ECB key interest rates are:
- Deposit facility rate: 2.00%
- Main refinancing rate: 2.15%
- Marginal lending facility: 2.40%
Is the ECB Rate-Cutting Cycle Coming to an End?
While markets lean toward one more cut in December, some ECB observers disagree. Konstantin Veit, portfolio manager at Pimco, expects no further cuts: “Our base case is that the ECB is done with rate cuts. The hurdle for adjusting rates again is quite high. Small deviations from the inflation target will not change the governing council’s view. As long as inflation hovers around 2%, the ECB will only act with a clear justification. And if it does act, it will be in a series of rate moves,” he says.
In contrast, BlackRock’s Huynh expects another rate cut to 1.75% in December. “A rate move in October would be premature, as the macroeconomic data for the third quarter will not yet be available. The December meeting would give the ECB more time to assess how conditions are developing, which increases certainty.” He sees 1.75% as the terminal rate unless shocks emerge. “We believe that in the next two to three years, interest rates could rise again, if growth and employment recover and consumers increase their spending.”
DWS also expects one final cut in December. “Rarely have there been so few comments from central bank governors ahead of an ECB meeting,” says Ulrike Kastens, senior economist for Europe at DWS. “But the data argue against urgent action. Eurozone growth surprised to the upside in the first half of the year, the labor market shows only isolated weaknesses in some countries, and inflation is hovering around 2%.”
What Does France’s Political Turmoil Mean for the ECB?
Political turmoil in France adds fresh risk to the eurozone economy. French prime minister François Bayrou plans to put his deficit-reduction strategy to a confidence vote on Monday, Sept. 8, raising market anxiety just days before the ECB meeting. This contributed to a bond market sell-off earlier last week.
While ECB president Christine Lagarde is likely to address the issue, intervention looks unlikely. The bar for ECB intervention is extremely high, as monetary policy is not designed to address the challenges of a single member state, says DWS’ Kastens.
Pimco’s Veit adds that current bond repricing reflects fundamentals rather than contagion.
What Is the Expectation for Inflation and Growth?
In its June projections, the ECB forecast inflation to average:
- 2.0% in 2025
- 1.6% in 2026
- 2.0% in 2027
“The ECB minutes show ongoing debate about whether undershooting becomes a problem. If inflation persistently falls short, the governing council could step in,” says Veit of Pimco. “Overall, inflation is broadly at target and growth is solid. Interest rates are in the middle of a neutral range. In that sense, the ECB is right when it says: We are in a good place.”
In June, the bank’s economists predicted:
GDP Growth:
• 0.9 % in 2025
• 1.1 % in 2026
• 1.3 % in 2027
When Are the Next ECB Meetings in 2025?
Sept.11, 2025
Oct. 30, 2025
Dec. 18, 2025
